Supreme Court of India

INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GOVERNMENT OF INDIA)versusSUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS AND OTHERS

Citation: 2023 INSC 746
Decided: 18 August 2023
Disposal: Appeal(s) allowed
Bench: SANJIV KHANNA

Holding

Section 529A of the Companies Act, being a non‑obstante provision, prevails over the Customs Act, so the secured creditor’s charge is enforceable and customs duties do not obtain a first‑charge priority over it.

Summary

The Industrial Development Bank of India (IDBI), as a secured creditor, sought to enforce its charge over imported machinery that had been stored in a private bonded warehouse and remained unpaid of customs duty. The company was wound up on 1 December 2003, and the Official Liquidator applied for possession of the goods, which the customs authorities had ordered to be sold to recover duty. The Supreme Court examined whether the Customs Act creates a first charge that overrides the secured creditor’s charge and how the provisions of the Companies Act, particularly sections 529A and 530, govern the priority of claims in winding‑up. It held that the customs duty became due and payable before the relevant date but did not fall within the preferential category of section 530, and that section 529A, a non‑obstante provision, prevails over any statutory claim of the customs authorities. Consequently, the secured creditor’s charge is enforceable and the sale proceeds must be distributed according to sections 529A and 530. The Court set aside the High Court’s judgment and allowed the appeal.

Issues considered

The Customs Act, 1962, creates a first charge that overrides the charge of a secured creditor in a winding‑up.
Whether customs duties payable before the relevant date qualify as preferential payments under section 530(1)(a) of the Companies Act, 1956.
The interpretation and effect of the non‑obstante clause in section 529A of the Companies Act vis‑à‑vis other statutory provisions, including section 142A of the Customs Act.
The proper determination of the 'relevant date' for assessing preferential claims in a compulsory winding‑up.

Legislation cited

Companies Act, 1956s. 447, s. 456, s. 468, s. 528, s. 529, s. 529A, s. 530, s. 530(1)(a), s. 530(8)(c)
Customs Act, 1962s. 142, s. 142A, s. 15, s. 46, s. 61, s. 68, s. 72
Income Tax Act, 1961s. 178
Insolvency and Bankruptcy Code, 2016s. 238
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Subjects

customs dutysecured creditoroverriding preferential creditorCompanies Act 1956section 529Asection 530priority of claimswinding upfirst chargegovernment duespreferential paymentsliquidation

Judgment

[2023] 12 S.C.R. 1052 : 2023 INSC 746

CASE DETAILS
INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH
STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY
THE GOVERNMENT OF INDIA)
v.
SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS
AND OTHERS
(Civil Appeal No. 2568 of 2013)
AUGUST 18, 2023
[SANJIV KHANNA AND SUDHANSHU DHULIA, JJ.]
HEADNOTES
Issue for consideration: Whether the Customs Act, 1962 creates a
ﬁrst charge overriding the charge in favour of the secured creditor.
Customs Act, 1962 – Companies Act, 1956 – ss.529A, 530(1)
– Customs duty ‘due and payable’ – ‘relevant date’ – Preferential
payments u/clause (a) to s.530(1) – Customs Act if negates or overrides
the statutory preference in terms of s.529A, Companies Act – Prior
secured creditors if entitled to enforce their charge, notwithstanding
the government dues payable under the Customs Act:
Held: Upon import of the goods, the Company had entered the
goods for home consumption u/s.46, Customs Act – However, the goods
were stored in a private bonded warehouse, in the terms of s.68, Customs
Act – Goods were not released on non-payment of customs duty etc. and,
thereupon, show cause notices were issued and two adjudication orders
dated 15.09.2000 and 10.10.2000 were passed – The debt had become
‘due’ in terms of the aforesaid two adjudication orders and ‘payable’
immediately – Thus, the customs duty became ‘due and payable’ prior
to twelve months next to the ‘relevant date’; the ‘relevant date’ being the
date of winding up of the Company on 01.12.2003 – The amount ‘due and
payable’ in terms of the two adjudication orders would, thus, not fall in the
category of preferential payments u/clause(a) to s.530(1), Companies Act
– Provisions in the Customs Act do not, in any manner, negate or override
the statutory preference in terms of s.529A, Companies Act, which treats
1052
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1053
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS

the secured creditors and the workmen’s dues as overriding preferential
creditors; and the government dues limited to debts ‘due and payable’ in
the twelve months next before the relevant date, which are to be treated
as preferential payments u/s.530, Companies Act, but are ranked below
overriding preferential payments and have to be paid after the payment has
been made in terms of s.529 and 529A, Companies Act – Therefore, the
prior secured creditors are entitled to enforce their charge, notwithstanding
the government dues payable under the Customs Act – Impugned judgment
set aside – Company Application ﬁled by the Oﬃcial Liquidator allowed –
Sale proceeds deposited in Supreme Court and converted into ﬁxed deposit
receipts, along with the interest accrued thereon, be paid to the Oﬃcial
Liquidator to be distributed in accordance with the provisions of ss.529A
and 530, Companies Act – Constitution of India – Article 372(1). [Paras
22, 23, 26 and 28]
Customs Act, 1962 – s.142A – Companies Act, 1956 – ss.529A, 530:
Held: Provision of s.142A, insofar as it protects the rights of overriding
preferential creditors governed and covered by s.529A, Companies Act, is
clariﬁcatory and declaratory in nature, and does not lay down a new dictum
or confer any new right as far as the present case is concerned – However, the
enactment of s.142A of the Customs Act does confer or create a ﬁrst charge
on the dues ‘payable’ under the Customs Act, notwithstanding provisions
under any Central Act, but not in cases covered u/s.529A of the Companies
Act, RDDBFI Act, SARFAESI Act and the IBC – s.142A, Customs Act,
post its enactment, would dilute the impact of s.530 of the Companies
Act, which had restricted preferential treatment to government taxes ‘due
and payable’ limited to twelve months prior to the ‘relevant date’, without
preferential right for taxes that had become ‘due and payable’ in the earlier
period. [Para 25]
Companies Act, 1956 – ss.529A, 530 – Non-obstante nature of
s.529A:
Held: In view of the non-obstante nature of s.529A of the Companies
Act, notwithstanding anything contained in any other provision of the
Companies Act or any other law for the time being in force on 24.05.1985,
on winding up of a company, the debt due to the workmen and the debt
due to secured creditors as speciﬁed, rank pari passu and are to be paid
1054 SUPREME COURT REPORTS [2023] 12 S.C.R.

in the manner prescribed therein in priority to all other debts – Provisions
of s.529A of the Companies Act prevail over s.530 of the Companies Act
– s.529A of the Companies Act, a non-obstante provision, is to be given
primacy in case of conﬂict, and consequently, in case of disharmony, this
section will override the discordant provisions of the Companies Act and all
other enactments in force and the debts are to be paid in terms of s.529A.
[Paras 8, 10 and 11]
Companies Act, 1956 – s.530(1)(a) – debts ‘due’ in the ﬁrst portion
of clause (a) to s.530(1) and the words ‘become due and payable
within the twelve months next before that date’ in the latter portion –
Interpretation:
Held: The words debt ‘due’ occurring in the ﬁrst part and the words
debt ‘due and payable’ in the latter part of s.530(1)(a) of the Companies Act
are diﬀerent expressions meant to convey diﬀerent and not the same meaning
– Therefore, for a government debt to be covered under clause (a) to s.530(1),
it must not only be a debt ‘due’, but it must also be a debt ‘due and payable’
within twelve months next before the relevant date – The requirements of
the latter portion of clause (a) to s.530(1) are dual and cumulative, which
is debt ‘due and payable’, and not one that is ‘due’ – The debt ‘due’ must
have become payable at any time within twelve months next before the
relevant date – The debt ‘due and payable’ prior to twelve months next to
the relevant date is not a preferential debt in terms of s.530(1)(a) – Such
debt will rank pari passu with ordinary or unsecured creditors, without any
preferential treatment. [Paras 18]
Companies Act, 1956 – s.530(8)(c) - ‘relevant date’:
Held: As per sub-clause (i) to clause (c) to sub-Section (8) to s.530,
the ‘relevant date’ in case where a company has been ordered to be wound
up compulsorily, shall be the date of appointment or ﬁrst appointment of
a provisional liquidator, or if no such appointment is made, the date of the
winding up order, unless the company had commenced to be wound up
voluntarily before that date – The present case is one of compulsory winding
up and, therefore, the ‘relevant date’, in the absence of appointment of a
provisional liquidator, would be the date on which the winding up order
was passed against the Company, 01.12.2003. [Para 12]
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1055
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS

Companies Act, 1956 – ss.447, 456, 468, 528, 529 – Eﬀect of –
Object and purpose – Objective of giving jurisdiction to the Company
Court/tribunal during the process of liquidation –Discussed – Doctrine
of pari passu.
LIST OF CITATIONS AND OTHER REFERENCES
Collector of Customs v. Dytron (India) Ltd. 1998 SCC OnLine Cal
674 – overruled.
Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Others, (2000)
5 SCC 694:[2000] 3 SCR 509; J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind
Spg. and Wvg. Co. Ltd. (1970) 40 Comp Cas 689; Rajratha Naranbhai Mills
Co. Ltd. v. Sales Tax Oﬃcer, Petlad (1991) 3 SCC 283:[1991] 1 SCR 527;
Commissioner of Customs, Calcutta and Another v. Biecco Lawrie Ltd.
(2008) 3 SCC 264:[2008] 2 SCR 257; Punjab National Bank v. Union of
India and Others (2022) 7 SCC 260; Sundaresh Bhatt, Liquidator of ABG
Shipyard v. Central Board of Indirect Taxes and Customs (2023) 1 SCC
472 – relied on.
The Superintendent of Central Excise and Customs v. M/s. Sri
Vishnupriya Industries Ltd. (in liqn.) and Others Original Side Appeal
No. 1 of 2005; UTI Bank Ltd. v. Deputy Commissioner of Central Excise
and Another (2007) 135 Company Cases 329 (Mad.); In Re Savin, [1872]
L.R. 7 Ch. App. 760, 764; Sales Tax Oﬃcer, Petlad v. Rajratna Naranbhai
Mills Co. Ltd. and Another (1974) 44 Comp Cas 65 (Guj); Builders Supply
Corporation v. Union of India and Others (1965) 2 SCR 289; Collector of
Aurangabad and Another v. Central Bank of India and Another (1967) 3
SCR 855; Imperial Chit Funds (P) Ltd. v. Income Tax Oﬃcer, Ernakulam
(1996) 8 SCC 303:[1996] 3 SCR 640 – referred to.
‘Rashbehary Ghose: Law of Mortgage’ TLL, 7th Edn., p. 386.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES

CIVIL ORIGINAL JURISDICTION: Civil Appeal No. 2568 of 2013.
From the Judgment and Order dated 26.08.2008 of the High Court of
Andhra Pradesh at Hyderabad in OSA No.1 of 2005.
1056 SUPREME COURT REPORTS [2023] 12 S.C.R.

Appearances:
Anand Varma, Ms. Apoorva Pandey, Advs. for the Appellant.
N. Venkatraman, ASG, Mukesh Kumar Maroria, V. C. Bharathi,
Ms. Nisha Bagchi, B. K. Satija, Anirudh Sharma I, Ms. Bina Madhavan,
Lakshay Saini, B. Krishna Prasad, M/s. Lawyer S Knit & Co., Advs. for
the Respondents.
JUDGMENT / ORDER OF THE SUPREME COURT

JUDGMENT
SANJIV KHANNA, J.
This appeal by Industrial Development Bank of India 1 takes exception
to the judgment dated 26th August 2008 passed by the full bench of the
Andhra Pradesh High Court in Original Side Appeal No. 1 of 20052,
whereby it has been held that notwithstanding the winding up order dated
1st December 2003 in the case of M/s. Sri Vishnupriya Industries Limited3,
and the provisions of Section 529A and 530 of the Companies Act, 1956 4,
the customs authorities have the ﬁrst right to sell the imported goods under
the Customs Act, 19625 and adjust the sale proceeds towards payment of
customs duty.
2. The Company, during the period 1994-2000, was granted and
availed of ﬁnancial assistance from the appellant – IDBI. As a security,
the Company had hypothecated movable properties and created equitable
mortgage of immovable properties by depositing title deeds. The charge was
duly registered with the Registrar of Companies. In addition, the promoters
and guarantors had furnished personal guarantees.
3. In the present case, we are concerned with the hypothecated movable
property, namely, machinery and its components, imported from Italy during

1 For short, ‘IDBI’.
2 The Superintendent of Central Excise and Customs v. M/s. Sri Vishnupriya Industries
Ltd. (in liqn.) and Others.
3 For short, ‘the Company’.
4 For short, ‘Companies Act’.
5 For short, ‘Customs Act’.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1057
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

the years 1998-1999. The goods, packed in 128 wooden containers, were
warehoused in a private bonded warehouse by executing bond in terms of
Section 59(1) of the Customs Act. The goods were initially warehoused
for one year, which period was extended. However, as the goods were
not cleared for home consumption in terms of Section 47 of the Customs
Act, even after expiry of the extended period of warehousing, show-cause
notices were issued6, and after considering the explanation given by the
Company, orders-in-original dated 15 th September 20007 and 10th October
20008 were passed conﬁrming levy of customs duty of Rs.3,27,22,191/-
and Rs.10,48,29,017/-, respectively. When the Company did not pay the
duty, the authorities had passed an order 9 dated 19th December 2000 for
sale of the warehoused goods for recovery of the customs duty, relying
on the powers conferred under Section 72(2) read with Section 142 of
the Customs Act. Thereafter, another order 10 under Section 72(2) of the
Customs Act was passed on 27th February 2002 for detention and sale of
the warehoused goods for recovery of Rs.22,20,38,112/-. On failure to pay
the duty, steps were initiated for auctioning the imported goods and the
Company was informed.
4. In the meanwhile, Company Petition No. 168 of 2002 was ﬁled
before the Andhra Pradesh High Court for winding up of the Company.
This petition was admitted on 1st April 2003. The Company was directed to
be wound up vide the order passed on 1st December 2003. Thereupon, the
Oﬃcial Liquidator ﬁled an application11 under Section 468 of the Companies
Act read with Rules 9 and 11(b) of the Companies (Court) Rules, 1959 12 for
directing the customs authorities to handover possession of the imported
goods, which had been put up for auction for payment of the customs duty.
This application was allowed by a single judge of the High Court vide
the order dated 3rd September 2004 observing, inter alia, that the customs
authorities had not followed the procedure contemplated under the Customs

6 Show Cause Notices dated 17th February 2000 and 10th April 2000.
7 Order in Original No. 1/2000 (Customs).
8 Order in Original No. 2/2000 (Customs).
9 C. No.VIII/16/1/2000-Adjn.
10 C. No.VIII/72/1/98-Customs.
11 C.A. No. 906/2004.
12 For short, ‘Company Court Rules’.
1058 SUPREME COURT REPORTS [2023] 12 S.C.R.

Act before passing the order under Section 72 of the Customs Act, in the
absence of which the detention orders were void ab initio and non-est in the
eyes of law. Secondly, on an order of winding up being passed, in terms of
Section 456 of the Companies Act,the assets of the company in liquidation,
by operation of law, vest in the Oﬃcial Liquidator, who alone was entitled
to deal with the eﬀects and actionable claims. Reference was also made to
Section 447 of the Companies Act13. Consequently, as the winding up order
had been passed against the Company but sale was yet to be eﬀected, the
Oﬃcial Liquidator was duty bound to take into his custody and control all
properties, eﬀects and actionable claims, including the movable property,
that is, the imported goods. Oﬃcial Liquidator, as the custodian of all the
properties of the Company, functions under the directions of the Company
Court. Any person making any claim against the Company has to prove his
claim before the Oﬃcial Liquidator by placing necessary material in support.
Accordingly, the submission regarding the custom authorities’ entitlement
and right under the Customs Act to sell the imported goods to realise their
dues was rejected.
5. On the customs authorities preferring an intra-court appeal, the
mater was referred to the full bench of the Andhra Pradesh High Court
on the question of whether the claim of a secured creditor has precedence
over the right of the customs authorities to recover the customs duty. The
full bench, relying on and approving the ratio of the Calcutta High Court
in Collector of Customs v. Dytron (India) Ltd.14, disagreed with the
view expressed by a full bench of the Madras High Court in UTI Bank
Ltd. v. Deputy Commissioner of Central Excise and Another 15. The
full bench of the Andhra Pradesh High Court has held that Section 468 16
of the Companies Act has no application as it empowers the Company
Court to require the ‘contributory’ to pay, deliver, surrender or transfer
any money, property or books and papers in his custody or control. The

13 We shall subsequently refer to Sections 456 and 447 of the Companies Act, as these
provisions are of relevance.
14 1998 SCC OnLine Cal 674.
15 (2007) 135 Company Cases 329 (Mad.). On the aspect of the Karnataka Land Revenue
Act, 1964, see judgment of this Court in Dena Bank v. Bhikhabhai Prabhudas Parekh
& Co. and Others, (2000) 5 SCC 694.
16 Section 468 of the Companies Act has been quoted subsequently.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1059
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

word ‘contributory’, deﬁned in Section 428 of the Companies Act, does
not include the customs department/authorities. Observations relying on
the ratio in Dytron (India) Ltd. (supra) have been made, a decision which
we would advert to later.
6. Aggrieved, the appellant – IBDI, as a secured creditor, has ﬁled
the present appeal. While issuing notice in the appeal vide order dated 3rd
May 2010, it was directed that status quo shall be maintained. Thereafter,
vide order dated 5th October 2017, the customs authorities, along with the
appellant – IDBI and the Oﬃcial Liquidator, were permitted to sell the
goods subject to deposit of the auction sale proceeds with the Registry of
this Court. The sale proceeds vide two demand drafts of Rs. 1,39,34,208/-
and Rs. 33,343/- dated 20th January 2023 have been deposited in this Court
and converted into a ﬁxed deposit receipt. The auction proceeds are to be
paid as per the outcome of the present appeal.
7. In the context of the present appeal, we would like to reproduce
Sections 529A and 530 of the Companies Act, which read as under:
“529A. Overriding preferential payments.—(1) Notwithstanding
anything contained in any other provision of this Act or any other law
for the time being in force, in the winding up of a company,—
(a) workmen’s dues; and
(b) debts due to secured creditors to the extent such debts rank under
clause (c) of the proviso to sub-section (1) of Section 529 pari passu
with such dues,
shall be paid in priority to all other debts.
(2) The debts payable under clause (a) and clause (b) of sub-section
(1) shall be paid in full, unless the assets are insuﬃcient to meet them,
in which case they shall abate in equal proportions.”
“530. Preferential payments.—(1) In a winding up, subject to the
provisions of Section 529-A, there shall be paid in priority to all other
debts—
(a) all revenues, taxes, cesses and rates due from the company to the
Central or a State Government or to a local authority at the relevant
1060 SUPREME COURT REPORTS [2023] 12 S.C.R.

date as deﬁned in clause (c) of sub-section (8) and having become due
and payable within the twelve months next before that date;
(b) all wages or salary (including wages payable for time or piece
work and salary earned wholly or in part by way of commission) of
any employee, in respect of services rendered to the company and
due for a period not exceeding four months within the twelve months
next before the relevant date, subject to the limit speciﬁed in sub-
section (2);
(c) all accrued holiday remuneration becoming payable to any
employee, or in the case of his death to any other person in his right,
on the termination of his employment before or by the eﬀect of, the
winding up order or resolution;
(d) unless the company is being wound up voluntarily merely for the
purposes of reconstruction or of amalgamation with another company,
all amounts due, in respect of contributions payable during the twelve
months next before the relevant date, by the company as the employer
of any persons, under the Employees’ State Insurance Act, 1948, (34
of 1948), or any other law for the time being in force;
(e) unless the company is being wound up voluntarily merely for
the purposes of reconstruction or of amalgamation with another
company, or unless the company has, at the commencement of the
winding up, under such a contract with insurers as is mentioned in
Section 14 of the Workmen’s Compensation Act, 1923, rights capable
of being transferred to and vested in the workman, all amounts due
in respect of any compensation or liability for compensation under
the said Act in respect of the death or disablement of any employee
of the company;
(f) all sums due to any employee from a provident fund, a pension fund,
a gratuity fund or any other fund for the welfare of the employees,
maintained by the company; and
(g) the expenses of any investigation held in pursuance of Section 235
or 237, in so far as they are payable by the company.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1061
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

(2) The sum to which priority is to be given under clause (b) of sub-
section (1), shall not, in the case of any one claimant, exceed such sum
as may be notiﬁed by the Central Government in the Oﬃcial Gazette:
(3) Where any compensation under the Workmen’s Compensation
Act, 1923 (8 of 1923), is a weekly payment, the amount due in respect
thereof shall, for the purposes of clause (e) of sub-section (1), be taken
to be the amount of the lump sum for which the weekly payment could
if redeemable, be redeemed if the employer made an application for
that purpose under the said Act.
(4) Where any payment has been made to any employee of a
company,—
(i) on account of wages or salary; or
(ii) to him, or in the case of his death, to any other person in his right
on account of accrued holiday remuneration,
out of money advance by some person for that purpose, the person
by whom the money was advanced shall, in a winding up, have a
right of priority in respect of the money so advanced and paid, up to
the amount by which the sum in respect of which the employee or
other person in his right, would have been entitled to priority in the
winding up has been diminished by reason of the payment having
been made.
(5) The foregoing debts shall—
(a) rank equally among themselves and be paid in full, unless the
assets are insuﬃcient to meet them, in which case they shall abate in
equal proportions; and
(b) so far as the assets of the company available for payment of general
creditors are insuﬃcient to meet them, have priority over the claims
of holders of debentures under any ﬂoating charge created by the
company, and be paid accordingly out of any property comprised in
or subject to that charge.
(6) Subject to the retention of such sums as may be necessary for the
costs and expenses of the winding up, the foregoing debts shall be
discharged forthwith so far as the assets are suﬃcient to meet them,
1062 SUPREME COURT REPORTS [2023] 12 S.C.R.

and in the case of the debts to which priority is given by clause (d) of
sub-section (1), formal proof thereof shall not be required except in
so far as may be otherwise prescribed.
(7) In the event of a landlord or other person distraining or having
distrained on any goods or eﬀects of the company within three months
next before the date of a winding up order, the debts to which priority
is given by this section shall be a ﬁrst charge on the goods or eﬀects
so distrained on, or the proceeds of the sale thereof:
Provided that, in respect of any money paid under any such charge,
the landlord or other person shall have the same rights of priority as
the person to whom the payment is made.
(8) For the purposes of this section—
(a) any remuneration in respect of a period of holiday or of absence
from work through sickness or other good cause shall be deemed to
be wages in respect of services rendered to the company during that
period;
(b) the expression “accrued holiday remuneration” includes, in
relation to any person, all sums which by virtue either of his contract
of employment or of any enactment (including any order made or
direction given under any enactment), are payable on account of the
remuneration which would, in the ordinary course, have become
payable to him in respect of a period of holiday, had his employment
with the company continued until he became entitled to be allowed
the holiday;
(bb) the expression “employee” does not include a workman; and
(c) the expression “the relevant date” means—
(i) in the case of a company ordered to be wound up compulsorily,
the date of the appointment (or ﬁrst appointment) of a provisional
liquidator, or if no such appointment was made, the date of the winding
up order, unless in either case the company had commenced to be
wound up voluntarily before that date; and
(ii) in any case where sub-clause (i) does not apply, the date of the
passing of the resolution for the voluntary winding up of the company.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1063
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

(9) This section shall not apply in the case of a winding up where
the date referred to in sub-section (5) of Section 230 of the Indian
Companies Act, 1913 (7 of 1913), occurred before the commencement
of this Act, and in such a case, the provisions relating to preferential
payments which would have applied if this Act had not been passed,
shall be deemed to remain in full force.”
8. Section 529A of the Companies Act, a non-obstante provision, is to
be given primacy in case of conﬂict, and consequently, in case of disharmony,
this section will override the discordant provisions of the Companies Act
and all other enactments in force. Section 529A of the Companies Act was
enforced by Act No. 35 of 1985 with eﬀect from 24 th May 1985. Therefore,
when there is a clash and disagreement between section 529A of the
Companies Act and another provision of the Companies Act or any other
enactment in force on 24th May 1985, Section 529A prevails and the debts
are to be paid in terms of Section 529A of the Companies Act.
9. As per clause (b) of sub-Section (1) to Section 529A of the
Companies Act, the debts due to secured creditors to the extent such debts
under clause (c) of the proviso to sub-Section (1) to Section 52917 rank pari
passu with the workmen’s dues18, are to be paid in priority to all other debts.
Sub-section (2) to Section 529A states that the debts payable under clauses
(a) and (b) of sub-Section (1) to Section 529A shall be paid in full, unless
the assets are insuﬃcient to meet them, in which case they shall abate in
equal proportions.
10. In the present case, we are not required to examine the inter-play
and principle of proportionality with reference to clauses (a) and (b) to
Section 529A of the Companies Act, albeit we must give full eﬀect to and
enforce the non-obstante nature of Section 529A of the Companies Act,
whereby, notwithstanding anything contained in any other provision of the
Companies Act or any other law for the time being in force on 24th May
1985, on winding up of a company, the debt due to the workmen and the

17 Clause (c) to the proviso to Section 529 has been quoted subsequently.
18 The expression ‘Workmen’s dues’ in Sections 529, 529A and 530 of the Companies
Act is deﬁned and restricted under sub-section (3)(b) to Section 529 of the Companies
Act.
1064 SUPREME COURT REPORTS [2023] 12 S.C.R.

debt due to secured creditors as speciﬁed, rank pari passu and are to be paid
in the manner prescribed therein in priority to all other debts.
11. Section 530 of the Companies Act, which was amended and
substituted by Act No. 35 of 1985 with eﬀect from 24 th May 1985, states
that Section 530 is subject to provisions of Section 529A of the Companies
Act. Section 530 of the Companies Act deals with preferential payments
that are a level below the overriding preferential payments under Section
529A of the Companies Act. Clause (a) to Section 530(1) of the Companies
Act confers preferential status to all revenue taxes, cesses, and rates ‘due’ to
the Central or the State government or to a local authority on the ‘relevant
date’ as deﬁ ned in clause (c) to sub-section (8) to Section 530 of the
Companies Act, which have become ‘due and payable’ within the twelve
months next before the relevant date. The taxes, cesses and rates due to the
Central and State governments or local authorities under Section 530 of the
Companies Act cannot be given priority over the payments/debts mentioned
in Section 529A of the Companies Act. It is, therefore, beyond debate that
the provisions of Section 529A of the Companies Act prevail over Section
530 of the Companies Act.
12. We shall subsequently interpret the expression debts ‘due’ in the
ﬁrst portion of clause (a) to Section 530(1) of the Companies Act and the
words ‘become due and payable within the twelve months next before that
date’ in the latter portion of clause (a) to Section 530(1) of the Companies
Act, but at this stage, it is relevant to take on record the ‘relevant date’ as
deﬁned in clause (c) to sub-Section (8) to Section 530 of the Companies
Act. As per sub-clause (i) to clause (c) to sub-Section (8) to Section 530 of
the Companies Act, the ‘relevant date’ in case where a company has been
ordered to be wound up compulsorily, shall be the date of appointment or ﬁrst
appointment of a provisional liquidator, or if no such appointment is made,
the date of the winding up order, unless the company had commenced to be
wound up voluntarily before that date. The present case is one of compulsory
winding up and, therefore, the ‘relevant date’, in the absence of appointment
of a provisional liquidator, would be the date on which the winding up order
was passed against the Company, which is 1 st December 200319.

19 The Oﬃcial Liquidator was appointed by the High Court vide the order dated 1st
December 2003 in Company Petition No. 168 of 2002.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1065
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

13. Again, before we proceed to interpret the expressions debt ‘due’
and debt ‘due and payable’ in clause (a) to Section 530(1) of the Companies
Act, it is relevant to take note of the eﬀect of Sections 447, 456, 468, 528
and 529 of the Companies Act, as well as the object and purpose behind
these provisions. The relevant sections read as follows:
“447. Eﬀect of winding up order.— An order for winding up a
company shall operate in favour of all the creditors and of all the
contributories of the company as if it had been made on all the joint
petition of a creditor and of a contributory.”
“456. Custody of company’s property—(1) Where a winding up
order has been made or where a provisional liquidator has been
appointed the liquidator or the provisional liquidator, as the case may
be, shall take into his custody or under his control, all the property,
eﬀects and actionable claims to which the company is or appears to
be entitled.
(1-A) For the purpose of enabling the liquidator or the provisional
liquidator, as the case may be, to take into his custody or under his
control, any property, eﬀects or actionable claims to which the company
is or appears to be entitled, the liquidator or the provisional liquidator,
as the case may be, may by writing request the Chief Presidency
Magistrate or the District Magistrate within whose jurisdiction such
property, eﬀects or actionable claims or any books of account or other
documents of the company may be found, to take possession thereof,
and the Chief Presidency Magistrate or the District Magistrate may
thereupon after such notice as he may think ﬁt to give to any party,
take possession of such property, eﬀects, actionable claims books
of account or other documents and deliver possession thereof to the
liquidator or the provisional liquidator.
(1-B) For the purpose of securing compliance with the provisions
of sub-section (1-A), the Chief Presidency Magistrate or the District
Magistrate may take or cause to be taken such steps and use or cause
to be used such force as may in his opinion be necessary.”
“468. Delivery of property to liquidator.—The Tribunal may, at any
time after making a winding up order, require any contributory for
the time being on the list of contributories, and any trustee, receiver,
1066 SUPREME COURT REPORTS [2023] 12 S.C.R.

banker, agent, oﬃcer or other employee of the company, to pay, deliver,
surrender or transfer forthwith, or within such time as the Tribunal
directs, to the liquidator, any money, property or books and papers in
his custody or under his control to which the company is prima facie
entitled.”
“528. Debts of all descriptions to be admitted to proof.— In
every winding up (subject, in the case of insolvent companies, to the
application in accordance with the provisions of this Act of the law of
insolvency), all debts payable on a contingency, and all claims against
the company, present or future, certain or contingent, ascertained or
sounding only in damages, shall be admissible, to proof against the
company, a just estimate being made, so far as possible, of the value
of such debts or claims as may be subject to any contingency, or
may sound only in damages, or for some other reason may not bear
a certain value.”
“529. Application of insolvency rules in winding up of insolvent
companies.— (1) In the winding up of an insolvent company, the same
rules shall prevail and be observed with regard to—
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and
(c) the respective rights of secured and unsecured creditors;
as are in force for the time being under the law of insolvency with
respect to the estates of persons adjudged insolvent:
Provided that the security of every secured creditor shall be deemed
to be subject to a pari passu charge in favour of the workmen to the
extent of the workmen’s portion therein, and where a secured creditor,
instead of relinquishing his security and proving his debt, opts to
realise his security,—
(a) the liquidator shall be entitled to represent the workmen and enforce
such charge;
(b) any amount realised by the liquidator by way of enforcement of
such charge shall be applied rateably for the discharge of workmen’s
dues; and
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1067
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

(c) so much of the debt due to such secured creditor as could not be
realised by him by virtue of the foregoing provisions of this proviso
or the amount of the workmen’s portion in his security, whichever is
less, shall rank pari passu with the workmen’s dues for the purposes
of Section 529-A.
(2) All persons who in any such case would be entitled to prove for
and receive dividends out of the assets of the company, may come in
under the winding up, and make such claims against the company as
they respectively are entitled to make by virtue of this section.
Provided that if a secured creditor instead of relinquishing his security
and proving for his debt proceeds to realise his security, he shall be
liable to pay his portion of the expenses incurred by the liquidator
(including a provisional liquidator, if any) for the preservation of the
security before its realization by the secured creditor.
Explanation.—For the purposes of this proviso, the portion of expenses
incurred by the liquidator for the preservation of a security which the
secured creditor shall be liable to pay shall be the whole of the expenses
less an amount which bears to such expenses the same proportion as
the workmen’s portion in relation to the security bears to the value
of the security.
(3) For the purposes of this section, Section 529-A and Section 530,—
(a) “workmen”, in relation to a company, means the employees of
the company, being workmen within the meaning of the Industrial
Disputes Act, 1947;
(b) “workmen’s dues”, in relation to a company, means the aggregate of
the following sums due from the company to its workmen, namely:—
(i) all wages or salary including wages payable for time or piece
work and salary earned wholly or in part by way of commission
of any workman, in respect of services rendered to the company
and any compensation payable to any workman under any of the
provisions of the Industrial Disputes Act, 1947;
(ii) all accrued holiday remuneration becoming payable to any
workman, or in the case of his death to any other person in his
1068 SUPREME COURT REPORTS [2023] 12 S.C.R.

right, on the termination of his employment before, or by the
eﬀect of, the winding up order or resolution;
(iii) unless the company is being wound up voluntarily
merely for the purposes of reconstruction or of amalgamation
with another company, or unless the company has, at the
commencement of the winding up, under such a contract
with insurers as is mentioned in Section 14 of the Workmen’s
Compensation Act, 1923, rights capable of being transferred
to and vested in the workman, all amounts due in respect of
any compensation or liability for compensation under the said
Act in respect of the death or disablement of any workman of
the company;
(iv) all sums due to any workman from a provident fund, a
pension fund, a gratuity fund or any other fund for the welfare
of the workmen, maintained by the company;
(c) “workmen’s portion”, in relation to the security of any secured
creditor of a company, means the amount which bears to the value of
the security the same proportion as the amount of the workmen’s dues
bears to the aggregate of—
(i) the amount of workmen’s dues; and
(ii) the amounts of the debts due to the secured creditors.”
14. As per Section 447 of the Companies Act, an order for winding
up of a company operates in favour of all the creditors as if it had been
made on a joint petition of a creditor. All creditors are treated as petitioning
creditors. Section 456 of the Companies Act requires a provisional
liquidator or a liquidator, as the case may be, to take all properties and
action claims, to which the company is or appears to be entitled, into
his custody or under his control. Sub-section (1A) to Section 456 of the
Companies Act entitles the liquidator or the provisional liquidator to write
a request to the Chief Presidency Magistrate or the District Magistrate
within whose jurisdiction such property, eﬀects or actionable claims
etc. of the company may be found, and, thereupon, these oﬃcers, after
giving notice to the party, are to take possession of the properties, eﬀects,
actionable claims, books of accounts, etc and deliver the possession to the
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1069
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

liquidator or provisional liquidator. Sub-section (1B) to Section 456 of the
Companies Act permits the Chief Presidency Magistrate or the District
Magistrate to take such steps or use such force, as in his opinion may be
necessary. Section 468 of the Companies Act permits the tribunal/court
to direct any contributory, trustee, receiver, banker, agent, oﬃcer or other
employee of the company to pay, deliver, surrender or transfer forthwith,
or within such time as directed, to the liquidator, any money, property,
or books and papers in his custody and control to which the company is
prima facie entitled.
15. Sections 528 to 530 of the Companies Act fall under Chapter
V - ‘Provisions Applicable to Every Mode of Winding Up’, under the
sub-heading ‘proof and ranking of claims’. Section 528 of the Companies
Act states that debts of all descriptions, including the debts payable on
contingency, and claims against the company, present or future, ascertained
or sounding only in damages, shall be admissible to proof against the
company, on a just estimate being made of such debts as far as possible.
Section 456 of the Companies Act, inter alia, provides that all the property
and eﬀects of the Company shall be deemed to be in the custody of the
tribunal/court as from the date of the order for the winding up of the
Company.
16. The objective of giving jurisdiction to the Company Court/tribunal
during the process of liquidation of the Company is two-fold: First, to ensure
that the assets of a company in liquidation are amassed and constellated to
prevent a scramble and dissipation of the assets of an insolvent company.
Secondly, the Company Court/tribunal is entrusted with paying oﬀ debts
from the sale proceeds of the assets so assimilated, according to the waterfall
mechanism provided for and speciﬁed under Sections 529, 529A and 530
of the Companies Act. Accordingly, and with this objective, Section 529A
of the Companies Act refers to the doctrine of pari passu in the proviso
to sub-section (1) to Section 529, with reference to the claims inter se the
workmen and the secured creditors. Even otherwise, on a conspectus of
these sections, the principle applicable and underlying these provisions is to
stop alienation and preserve the assets on the date of the bankruptcy, which
date, in some cases, can relate back to the date of ﬁling of the winding up
petition, as in case of execution of a decree. This preservation is with a view
to ensure the division and application of the assets of the company being
1070 SUPREME COURT REPORTS [2023] 12 S.C.R.

wound up, as it stood on the relevant date.20 The payment must be made in
terms of the priority prescribed.
17. This Court in J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg.
and Wvg. Co. Ltd.21 has held that once a winding up order is passed, the
assets of the company under liquidation are passed under the control of the
liquidator, whose statutory duty is to realize them. Thereafter, the creditors
are paid out by the liquidator from the sale proceeds of the assets of the
liquidated company. The creditors have to be paid in terms of the waterfall
or priority mechanism. Therefore, payment has to be ﬁrst made in terms
of Section 529A of the Companies Act to overriding preferential creditors,
then to preferential creditors in terms of Section 530 of the Companies Act
and lastly, payment has to be made and distributed pari passu among the
ordinary or unsecured creditors. This objective and intent is also apparent
when we examine the Company Court Rules, as per which the liquidator
is to ﬁx a date on or before which all creditors of the company are to prove
their debts or claims and to establish any title they may have to priority
under Section 530 of the Companies Act. 22 Not only this, the rules enable
a creditor to claim interest up to the date of the winding up order, and in
certain circumstances, payment of interest subsequent to the date of winding
up.23 There is, however, an exception to the two-fold method, as has been
held in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Others24,
which we will subsequently elucidate.
18. This brings us to the interpretation of the expressions debt ‘due’
and debt ‘due and payable’ in Section 530(1)(a) of the Companies Act.
The interpretation is no longer debatable in view of the judgment of
this Court in Rajratha Naranbhai Mills Co. Ltd. v. Sales Tax Oﬃcer,
Petlad25, which has approved the view taken by D.A. Desai, J., in his
judgment in Sales Tax Oﬃcer, Petlad v. Rajratna Naranbhai Mills Co.

20 See – In Re Savin, [1872] L.R. 7 Ch. App. 760, 764.
21 (1970) 40 Comp Cas 689.
22 See – Rule 147, Companies (Court) Rules, 1959.
23 See – Rules 156 and 179, Companies (Court) Rules, 1959.
24 (2000) 5 SCC 694.
25 (1991) 3 SCC 283.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1071
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

Ltd. and Another26, a judgment, which, we respectfully submit, forms
the foundation of our reasoning and ratio in the present case. This Court
in Rajratha Naranbhai Mills Co. Ltd. (supra), agreeing with the views
expressed by D.A. Desai, J. in Sales Tax Oﬃcer, Petlad (supra), overruled
the judgment of the division bench under challenge, for several reasons, to
hold that the words debt ‘due’ occurring in the ﬁrst part and the words debt
‘due and payable’ in the latter part of Section 530(1)(a) of the Companies
Act are diﬀerent expressions meant to convey diﬀerent and not the same
meaning. Therefore, for a government debt to be covered under clause (a)
to Section 530(1) of the Companies Act, it must not only be a debt ‘due’,
but it must also be a debt ‘due and payable’ within twelve months next
before the relevant date. The requirements of the latter portion of clause
(a) to Section 530(1) of the Companies Act are dual and cumulative, which
is debt ‘due and payable’, and not one that is ‘due’. The debt ‘due’ must
have become payable at any time within twelve months next before the
relevant date. The debt ‘due and payable’ prior to twelve months next to
the relevant date is not a preferential debt in terms of Section 530(1)(a)
of the Companies Act. Such debt will rank pari passu with ordinary or
unsecured creditors, without any preferential treatment. In this regard, we
quote the following passages from the decision of this Court in Rajratha
Naranbhai Mills Co. Ltd. (supra):
“8. We have gone through both the judgments afore-referred to
very carefully and minutely and have heard learned counsel on the
conﬂ icting decisions. There are wide ranging discussions in the
interpretative process relating to the word ‘due’ occurring in the earlier
part of the provision and the words ‘due and payable’ in the later part,
and whether they are diﬀerent expressions meant to convey diﬀerently
or they mean the same thing. With due respect to the High Court, we
feel that relevant and important considerations and material though
available, which could go to interpret the section purposively was
overlooked, and at this juncture we wish to put it to use.
×× ×× ××

26 (1974) 44 Comp Cas 65 (Guj).
1072 SUPREME COURT REPORTS [2023] 12 S.C.R.

11. In A. Ramaiya’s The Companies Act (11th edn. 1988) it has been
noticed at page 1320 that Section 530 of the Companies Act, 1956
has been largely recast and amended in the light of the following
recommendations (excerpted) of the Company Law Committee in
paragraph 218 of their Report:
×× ×× ××
In this connection we should like to refer to a memorandum that we
received from the Central Board of Revenue, on the question of a
priority to be given to crown demands generally and, in particular, to
arrears of income tax, super tax and corporation tax. It was suggested
that there should be no time limit for the preferential payment of these
crown debts and that Section 230 of the Indian Companies Act should
be amended accordingly. The practical diﬃculty of giving eﬀect to
the suggestion is that it would place a great majority of the unsecured
creditors of the company at the mercy of the income tax authorities,
inasmuch as, whatever may be the nature of the security on which
they may have lent money to a company at the time of the loan, the
unforeseeable demands of the income tax authorities on the company
without any time limit would rank over the claims of such creditors.
In these circumstances, it may be extremely diﬃcult for the company
to raise capital for its working...We are aware of the large arrears of
income and other taxes which are due by many companies, which are
in liquidation, but we would venture to think that the remedy for this
unsatisfactory situation is not the conferment of preferential rights
without limit to the income tax authorities under Section 230 of the
Indian Companies Act, but the energetic completion of assessment
proceedings and vigorous measures for the collection of the assessed
taxes.
×× ×× ××
13. Both benches of the High Court, with due respect, gave to
the provision a very wide and varied interpretation and that too
on literality and grammaticals seemingly overlooking the legal
philosophy which permeates the provision, the same being that the
debts due and payable, so as to claim priority, must be appropriated
to the period within 12 months next before the relevant date and
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1073
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

their liability for payment must be founded during that period and
no other. To put it in simpler words, the State has a priority over
debts, liability and obligation of which was born within the time
frame of those twelve months and as such due and becoming due
and payable within those twelve months next before the relevant
date, ascertainable if necessary later, if not already ascertained. We
are in respectful agreement with the interpretation put by the Court
of Appeal to Section 264 of the English Companies Act in Airedale
Garage case, analogous as it is to the provision in hand, warranting
the same interpretation; more so when any other interpretation would
lead to the results feared by the Company Law Committee extracted
above. In such view of the matter, we need not elaborately comment,
discuss or demolish, sentence by sentence, the reasoning given by
the Single Bench as also the Division Bench of the High Court
towards interpreting the provision. The words ‘having become due
and payable within 12 months next before the relevant date’ need
be understood to mean putting a restriction or cordoning oﬀ the
amount for which priority is claimable and not in respect of each and
every debt on account of taxes, rates and cesses etc. which may be
outstanding at that time and payable. And further that such priority
is in respect only of debts those of which become due and payable
because the liability to those is rooted, founded and belonging to that
period of twelve months prior to the relevant date and none other;
both the conditions existing.”
19. D.A. Desai, J., in his judgment in Sales Tax Oﬃcer, Petlad (supra)
as a judge of Gujarat High Court, had examined the question of when a debt
becomes payable, for this is a requirement to be satisﬁed, and only when
the debt becomes ‘due and payable’ during the twelve months next before
the relevant date, does the debt get the character of a preferential debt.
After elaborate discussion, D.A. Desai, J. has held that the debt becomes
‘due’ under the applicable taxing statute on the date when the sale, that is,
the taxing event takes place. Tax may become ‘due’ but may be payable in
future in terms of the statute. In the context of the Sales Tax Act in question27,

27 Bombay Sales Tax Act, 1953 and Central Sales Tax Act, 1956.
1074 SUPREME COURT REPORTS [2023] 12 S.C.R.

it was held that the sales tax became ‘due and payable’ when the returns
were ﬁled. Determination or quantiﬁcation of the tax at the time of passing
of the assessment order in terms of the Sales Tax Act, Sales Tax Oﬃcer,
Petlad (supra) holds, was not relevant. We need not refer to the Sales Tax
Act relevant in Sales Tax Oﬃcer, Petlad (supra) for the purpose of the
present case. On the other hand, we would have to refer to the provisions of
the Customs Act to ascertain the date on which the customs duty in respect
of the goods in question became ‘due and payable’. We are answering this
question, though not necessary, as the appellant – IDBI is an overriding
preferential creditor under Section 529A of the Companies Act and at best,
if the requirements of clause (a) to Section 530(1) of the Companies Act are
satisﬁed, the customs dues would fall under Section 530 of the Companies
Act and will be categorized as preferential payment. To decide this question,
we shall also be examining the question of whether the Customs Act creates
a ﬁrst charge overriding the charge in favour of the secured creditor, namely,
the appellant – IDBI.
20. This Court in Dena Bank (supra), while examining the issue of
priority of government dues or Crown debts over the dues of other creditors,
opined that the Crown’s preferential right to recovery of debts over other
creditors is conﬁned to ordinary or unsecured creditors. The common
law principles of equity and good conscience, as applicable in India and
the common law of England, do not accord the government or Crown
dues a preferential right for recovery of dues or debts over a mortgagee,
pledgee of goods or a secured creditor. The common law doctrine giving
preferential rights to the Crown debts conﬁned to ordinary or unsecured
creditors constitutes ‘law in force’ within the meaning of Article 372(1)
of the Constitution of India, and accordingly, this law continues to be in
force. This Court in Dena Bank (supra) speciﬁcally refers to and approves
the statement of law made in ‘Rashbehary Ghose: Law of Mortgage’28
– “It seems a government debt in India is not entitled to precedence over
a prior secured debt.” This principle also emanates from the decision of
the Constitution bench of this Court in Builders Supply Corporation v.
Union of India and Others29, which was followed by a three judges’ bench

28 TLL, 7th Edn., p. 386.
29 (1965) 2 SCR 289.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1075
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

in Collector of Aurangabad and Another v. Central Bank of India and
Another30. At the same time, we must record for clarity that this principle,
which vents from the ‘law in force’ within the meaning of Article 372(1) of
the Constitution of India, must give way to a statutory charge which may
be created by an enactment, whereby a ﬁrst charge is given to government
dues or Crown debts, notwithstanding the charge of the secured creditors.
21. Having considered the provisions of the Companies Act, and the
general principles of law, we would now proceed to examine whether the
Customs Act creates a ﬁrst charge for payment of the customs dues, and if
so, harmonise and resolve the conﬂict between the Companies Act and the
Customs Act.
22. We would begin by quoting Section 15 of the Customs Act:
“15. Date for determination of rate of duty and tariﬀ valuation
of imported goods.—(1) The rate of duty and tariﬀ valuation, if any,
applicable to any imported goods, shall be the rate and valuation in
force,—
(a) in the case of goods entered for home consumption under Section
46, on the date on which a bill of entry in respect of such goods is
presented under that section;
(b) in the case of goods cleared from a warehouse under Section 68,
on the date on which a bill of entry for home consumption in respect
of such goods is presented under that section;
(c) in the case of any other goods, on the date of payment of duty:
Provided that if a bill of entry has been presented before the date of
entry inwards of the vessel or the arrival of the aircraft or the vehicle
by which the goods are imported, the bill of entry shall be deemed to
have been presented on the date of such entry inwards or the arrival,
as the case may be.
(2) The provisions of this section shall not apply to baggage and goods
imported by post.”

30 (1967) 3 SCR 855.
1076 SUPREME COURT REPORTS [2023] 12 S.C.R.

In the present case, upon import of the goods, the Company had
entered the goods for home consumption under Section 46 of the Customs
Act, which reads as under:
“46. Entry of goods on importation.—(1) The importer of any goods,
other than goods intended for transit or transhipment, shall make
entry thereof by presenting electronically on the customs automated
system to the proper oﬃcer a bill of entry for home consumption or
warehousing in such form and manner as may be prescribed:
Provided that the Principal Commissioner of Customs or Commissioner
of Customs may, in cases where it is not feasible to make entry by
presenting electronically on the customs automated system, allow an
entry to be presented in any other manner:
Provided further that if the importer makes and subscribes to a
declaration before the proper oﬃcer, to the eﬀect that he is unable
for want of full information to furnish all the particulars of the goods
required under this sub-section, the proper oﬃcer may, pending the
production of such information, permit him, previous to the entry
thereof : (a) to examine the goods in the presence of an oﬃcer of
customs, or (b) to deposit the goods in a public warehouse appointed
under Section 57 without warehousing the same.
(2) Save as otherwise permitted by the proper oﬃcer, a bill of entry
shall include all the goods mentioned in the bill of lading or other
receipt given by the carrier to the consignor.
(3) The importer shall present the bill of entry under sub-section (1)
before the end of the day (including holidays) preceding the day on
which the aircraft or vessel or vehicle carrying the goods arrives at
a customs station at which such goods are to be cleared for home
consumption or warehousing:
Provided that the Board may, in such cases as it may deem ﬁt, prescribe
diﬀerent time limits for presentation of the bill of entry, which shall
not be later than the end of the day of such arrival:
Provided further that] a bill of entry may be presented at any time not
exceeding thirty days prior to the expected arrival of the aircraft or
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1077
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

vessel or vehicle by which the goods have been shipped for importation
into India:
Provided also that where the bill of entry is not presented within the
time so speciﬁed and the proper oﬃcer is satisﬁed that there was no
suﬃcient cause for such delay, the importer shall pay such charges for
late presentation of the bill of entry as may be prescribed.
(4) The importer while presenting a bill of entry shall make and
subscribe to a declaration as to the truth of the contents of such bill of
entry and shall, in support of such declaration, produce to the proper
oﬃcer the invoice, if any, and such other documents relating to the
imported goods as may be prescribed.
(4-A) The importer who presents a bill of entry shall ensure the
following, namely—
(a) the accuracy and completeness of the information given therein;
(b) the authenticity and validity of any document supporting it; and
(c) compliance with the restriction or prohibition, if any, relating to the
goods under this Act or under any other law for the time being in force.
(5) If the proper oﬃcer is satisﬁed that the interests of revenue are not
prejudicially aﬀected and that there was no fraudulent intention, he
may permit substitution of a bill of entry for home consumption for a
bill of entry for warehousing or vice versa.”
However, the goods were stored in a private bonded warehouse, in the
terms of Section 68 of the Customs Act, which reads as follows:
“68. Clearance of warehoused goods for home consumption.—
Any warehoused goods may be cleared from the warehouse for home
consumption, if—
(a) a bill of entry for home consumption in respect of such goods has
been presented in the prescribed form;
(b) the import duty, interest, ﬁne and penalties payable in respect of
such goods have been paid; and
(c) an order for clearance of such goods for home consumption has
been made by the proper oﬃcer:
1078 SUPREME COURT REPORTS [2023] 12 S.C.R.

Provided that the order referred to in clause (c) may also be made
electronically through the customs automated system on the basis of
risk evaluation through appropriate selection criteria:
Provided further that the owner of any warehoused goods may, at any
time before an order for clearance of goods for home consumption
has been made in respect of such goods, relinquish his title to the
goods upon payment of penalties that may be payable in respect of
the goods and upon such relinquishment, he shall not be liable to pay
duty thereon:
Provided also that the owner of any such warehoused goods shall not
be allowed to relinquish his title to such goods regarding which an
oﬀence appears to have been committed under this Act or any other
law for the time being in force.”
The goods were not released on non-payment of customs duty etc.
and, thereupon, show cause notices dated 17th February 2000 and 10th April
2000 were issued and two adjudication orders dated 15 th September 2000
and 10th October 2000 were passed.
23. In a similar factual matrix, a three judges’ bench of this Court
in Commissioner of Customs, Calcutta and Another v. Biecco Lawrie
Ltd.31 had examined the provisions of Section 15 of the Customs Act, as
they then existed, and have opined that clause (b) to Section 15(1) of the
Customs Act will cease to apply when the requirements under Section 68
of the Customs Act stand fulﬁlled and the imported goods are cleared for
home consumption. In the context of the present case, we must hold that
the debt had become ‘due’ in terms of the two adjudication orders dated 15 th
September 2000 and 10th October 2000 and ‘payable’ immediately. Thus,
the customs duty became ‘due and payable’ prior to twelve months next to
the ‘relevant date’; the ‘relevant date’ being the date of winding up of the
Company on 1st December 2003. The amount ‘due and payable’ in terms
of the two adjudication orders dated 15th September 2000 and 10th October
2000 would, therefore, not fall in the category of preferential payments
under clause (a) to Section 530(1) of the Companies Act.

31 (2008) 3 SCC 264.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1079
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

24. We have also examined Sections 61, 72 and 142 of the Customs
32
Act to consider the question of whether the Customs Act confers and
creates statutory ﬁrst charge on the customs dues, and are of the opinion
that the sections do not incorporate a statutory ﬁrst charge to override the
general law, as per the dictum in Dena Bank (supra). The provisions of
the land revenue enactment applicable in the present case have not been
relied upon by the respondents, in which event, a legal issue relating to
conﬂict of laws would have arisen and required an answer. The provisions
in the Customs Act do not, in any manner, negate or override the statutory
preference in terms of Section 529A of the Companies Act, which treats
the secured creditors and the workmen’s dues33 as overriding preferential
creditors; and the government dues limited to debts ‘due and payable’ in
the twelve months next before the relevant date, which are to be treated
as preferential payments under Section 530 of the Companies Act, but
are ranked below overriding preferential payments and have to be paid
after the payment has been made in terms of Section 529 and 529A of
the Companies Act. Therefore, the prior secured creditors are entitled to
enforce their charge, notwithstanding the government dues payable under
the Customs Act.
25. The view and the ratio we have expressed is in consonance with
the decision of this Court in Punjab National Bank v. Union of India and
Others34. A similar view has also been expressed by a three judges’ bench
of this Court in Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central
Board of Indirect Taxes and Customs35, with references to the provisions
of the Insolvency and Bankruptcy Code, 201636 and the Customs Act. In
this context, the three judges’ bench in Sundaresh Bhatt, Liquidator of
ABG Shipyard (supra) has referred to Section 238 of the IBC to observe
that Section 238 of the IBC clearly overrides any provision of law which is
inconsistent with the IBC. This judgment has also made reference to Section
142A of the Customs Act, which reads thus:

32 These provisions, though relevant, are not being reproduced for the sake of brevity.
33 As deﬁned and payable in terms of Section 529(3)(b) of the Companies Act.
34 (2022) 7 SCC 260.
35 (2023) 1 SCC 472.
36 For short, ‘IBC’.
1080 SUPREME COURT REPORTS [2023] 12 S.C.R.

“142A. Liability under Act to be ﬁrst charge.—Notwithstanding
anything to the contrary contained in any Central Act or State Act,
any amount of duty, penalty, interest or any other sum payable by an
assessee or any other person under this Act, shall, save as otherwise
provided in Section 529-A of the Companies Act, 1956 (1 of 1956),
the Recovery of Debts Due to Banks and the Financial Institutions
Act, 1993 (51 of 1993), the Securitisation and Reconstruction of
Financial Assets and the Enforcement of Security Interest Act, 2002
and the Insolvency and Bankruptcy Code, 2016 be the ﬁrst charge on
the property of the assessee or the person, as the case may be.”
Section 142A of the Customs Act was inserted by Act 8 of 2011
with eﬀect from 8th April 2011. It does not apply to the present litigation.
Section 142A of the Customs Act protects and ensures that the dues under
the Customs Act do not, in any way, aﬀect the rights of third parties under
Section 529A of the Companies Act or rights of the parties as per provisions
of the Recovery of Debts Due to Banks and the Financial Institutions Act,
199337, the Securitisation and Reconstruction of Financial Assets and the
Enforcement of Security Interest Act, 200238 and the IBC. Read in this
manner, it is clear to us that the provision of Section 142A of the Customs
Act, insofar as it protects the rights of overriding preferential creditors
governed and covered by Section 529A of the Companies Act, is clariﬁcatory
and declaratory in nature, and does not lay down a new dictum or confer any
new right as far as the present case is concerned. However, the enactment
of section 142A of the Customs Act does confer or create a ﬁrst charge
on the dues ‘payable’ under the Customs Act, notwithstanding provisions
under any Central Act, but not in cases covered under Section 529A of the
Companies Act, RDDBFI Act, SARFAESI Act and the IBC. Section 142A
of the Customs Act, post its enactment, would dilute the impact of Section
530 of the Companies Act, which had restricted preferential treatment to
government taxes ‘due and payable’ limited to twelve months prior to the
‘relevant date’, without preferential right for taxes that had become ‘due
and payable’ in the earlier period.

37 For short, ‘RDDBFI Act’.
38 For short, SARFAESI Act’.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND 1081
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]

26. In view of our reasoning, we must hold that the decision of the
division bench of the Calcutta High Court in Dytron (India) Ltd.(supra)
does not lay down the correct law and is, accordingly, overruled. The
decision in Dytron (India) Ltd.(supra) was referred to in Sundaresh
Bhatt, Liquidator of ABG Shipyard (supra), wherein this Court observed
that reliance of the National Company Law Appellate Tribunal on Dytron
(India) Ltd.(supra) was not appropriate as such interpretation has been
legislatively overruled by the inclusion of Section 142A in the Customs
Act. We wish to clarify, as held above, that the decision in Dytron (India)
Ltd.(supra) does not lay down the correct law, as even earlier, the position
in law was that the debt ‘due and payable’, when it falls within the four
corners of clause (a) to Section 530(1) of the Companies Act, would be
treated as preferential payment, but it would not override and be given
preference over the payments of overriding preferential creditors covered
under Section 529A of the Companies Act.
27. We must also examine the decision of this Court in Imperial Chit
Funds (P) Ltd. v. Income Tax Oﬃcer, Ernakulam39, wherein this Court has
interpreted the legal eﬀect of Section 178 of the Income Tax Act, 1961 40,
which was enacted pursuant to the report of the Company Law Reforms
Committee. On interpretation of Section 178 of the Income Tax Act, it
was held that the provision is made applicable for any tax which is ‘then
or is likely to become payable’, and speciﬁcally relates to cases where
the company is in liquidation. Consequently, the amount speciﬁed and
covered by Section 178 of the Income Tax Act is protected in view of the
non-obstante clause in sub-section (6) to Section 178 and this amount has
to be set aside. In terms of Section 178 of the Income Tax Act, the amount
set aside will not form a part of the pool of dues to be distributed among
ordinary or unsecured creditors or, for that matter, as indicated over the
overriding or preferential creditors under Sections 529A and 530 of the
Companies Act.
28. In view of the aforesaid discussion and for the reasons stated, the
present appeal is allowed and the impugned judgment dated 26th August 2008

39 (1996) 8 SCC 303.
40 For short, ‘Income Tax Act’.
1082 SUPREME COURT REPORTS [2023] 12 S.C.R.

in Original Side Appeal No. 1 of 2005 is set aside. Company Application
No. 906 of 2004 ﬁled by the Oﬃcial Liquidator in Company Petition No.
168 of 2002 will be treated as allowed. The sale proceeds deposited in this
Court and converted into ﬁxed deposit receipts, along with the interest
accrued thereon, will be paid to the Oﬃcial Liquidator to be distributed in
accordance with the provisions of Sections 529A and 530 of the Companies
Act. There would be no order as to costs.

Headnotes prepared by: Appeal allowed.
Divya Pandey

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