Civil Appeal No 2891 NT of 1977
Appeal by Certificate from the Judgment and Order dated 15101975 of the Gujarat High Court OJ Appeal No 2 of 1975
B Datta PH Parekh and JP Pathak for the Appellant
Dushyant Dave Anip Sachthey and Ashish Verma for the Respondent
The Judgment of the Court was delivered by PUNCHHI J
What is the ambit of the State s claim to priority in relation to revenues taxes cesses and rates due from a company in liquidation is the question which stands posed in this appeal by certificate granted by the High Court of Gujarat in OJ Appeal No 2 of 1975
The question arises on the frame of section 5301a of the  as it stood at the relevant time which is set out below In winding up there shall be paid in priority to all other debts all revenues taxes cesses and rates due from the company to the Central or a State Government to a local authority at the relevant date as defined in clause c of 530 sub section 8 and having become due and payable within the twelve months next before that date
And sub section 8c of section 530 says The expression the relevant date  means i in the case of a company ordered to be wound up compulsorily the date of 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
 The appellant company was ordered to be wound up by an order of Court made on June 26 1967
The liquidator after obtaining directions of the Court invited the creditors of the company to prove their debts or claims and simultaneously to establish any title they may have to priority under section 530
Pursuant to this invitation the Sales Tax Officer Petlad submitted a comprehensive claim in the sum of Rs 7094560 as the amount of sales tax plus penalty payable by the company and claimed priority for the whole amount
The liquidator rejected the claim for priority in its entirety but admitted claim to the tune of Rs4214363 payable as debt paripassu with other unsecured creditors of the company
The Sales Tax Officer took the matter in appeal before the Company Judge under Rule 164 of the Companies Court Rules 1959 which was heard by D A Desai J as he was in the Gujarat High Court
It was urged on behalf of the Sales Tax Officer that out of the admitted claim in the amount of Rs4214383 the liquidator was in error in not granting priority in payment of debt of Rs2228096 consisting of Rs1106446 being sales tax payable by the company for the period from April 1 1957 to December 31 1965 under the Bombay Sales Tax Act and balance of Rs 1121650 being the amount of sales tax payable under the Central Sales Tax Act for the period from July 1 1957 to December 31 1965 because the assessment order was made in respect of the aforementioned claim within a period of 12 months next before the relevant date and the notice of demand which made the tax payable was also issued within a period of 12 months next 531 before the relevant date
It was urged that apart from any other consideration the petitioner is entitled to a priority in payment for the amount of Rs2228096 as the claim was of sales tax which was due on the relevant date and which became due and payable within 12 months next before the relevant date
It was conceded that balance of the admitted claim in the amount of Rs 1986287 being the amount of sales tax due and payable under the Bombay Sales Tax Act for the period from January 1 1966 to June 26 1967 would not be entitled to priority in payment
It was also conceded that the claim for an amount of Rs 19642 had been rightly rejected
It would appeal that from the claim admitted as payable by the liquidator to the extent of Rs 4214383 priority in payment was claimed for the amount of Rs2228096 on the submission that the claim represented the claim for tax payable to the State Government as it was due on the relevant date and had become due and payable within 12 months next before the relevant date and therefore it was entitled to a priority in payment as envisaged by section 5301a of the 
The learned Judge on interpretation of section 5301a took the view that the word due  implies or conveys meanings in juxtaposition in which it is used in the two parts of the same clause
The word due  in the first part of the clause must mean outstanding at the relevant date 
When it occurs in the expression having become due  in the later part of the clause it means that the event which brought the debt into existence occurred and also it became payable meaning thereby that its payment could have been enforced against the company within the twelve months before the relevant date that is the date of the order of winding up
Three specific conditions are prescribed in the clause and all the three must co exist and be satisfied in respect of any particular debt for which priority is claimed
The three conditions are i Debt of the kind mentioned in the clause must be outstanding on the relevant date ii The debt must have become due in the sense that it must have been incurred at any time within the twelve months next before the relevant date and iii The debt must have payable at any time within the twelve months next before the relevant date
To conclude the learned Judge observed that the tax becomes due 532 when taxing event occurrs and not when assessment orders passed and that the claim for priority was rightly negatived by the liquidator because even though amount for which priority was claimed was the amount of tax arrears that became payable at the time of making assessment orders after giving credit for what was paid alongwith return yet it was due for a period much prior to 12 months next before the relevant date and even if it had become payable on the assessment order being made and demand notice being issued as both the conditions did not co exist and were not satisfied claim for priority had been rightly nagatived by the official liquidator requiring no interference in his order
The appeal on that score was rejected but was allowed to the extent of a small amount of Rs122536 being the amount of penalty under the Bombay Sales Tax Act and the Central Sales Tax Act upto the relevant date and the liquidator was directed to admit the said claim over and above the claim admitted by him
The judgment of the DR Desai J is reported as Sales Tax Officer Petlad vs Rajratha Naranbhai Mills Co Ltd  Another 1974 Vol
An intra Court Appeal was preferred by the Sales Tax Officer Petlad in the High Court
In the meantime in another case of Baroda Board  Paper Mills Ltd a company in liquidation the Income Tax Officer filed Company Application No 2 of 1973 before the Company Judge claiming priority in respect of certain dues
The Company Judge B K Mehta J was engaged to determine the same question
His attention was invited to the decision of DA Desai J in the instant case
DK Mehta J was unable to agree with the conclusion reached by DA Desai J and hence the matter was referred to a Division Bench to have the entire question decided along with OJ Appeal No 2 of 1975
The division bench of the High Court differed from the view of DA Desai J by holding that the only meaning that could be assigned to the word due  occuring in the section is it must be presently due  and the words due and payable  mean the same thing namely that it must be presently payable
On this understanding it was held that all revenues taxes cesses and rates due from the company to the Central or State Government or to a local authority must be presently payable that is that the liability could be enforced as at the relevant date and secondly it must have so become presently payable within twelve months immediately preceding the relevant date
Further regarding sales tax it was held that it becomes due and payable when the tax has been assessed and a notice of demand for payment of that tax is served 533 upon the assessee or the dealer concerned and it is in this sense that the word has to be interpreted
Taking that view the appeal of the Sales Tax Officer was allowed inasmuch as the sales tax due under the Bombay Sales Tax Act and the Central Sales Tax Act in respect of which the assessment orders were passed within the period of twelve months immediately preceding June 26 1967 were held to have priority
The balance amount as dues was directed to rank as ordinary debts without any priority since the relevant orders were passed after the date of the winding up order
The claim of the Sales Tax Officer to the recovery of penalty in liquidation proceedings was negatived because the demand was held to be without application of mind as to whether there was reasonable cause for the official liquidator for not paying the amount
O J Appeal No 2 of 1975 was allowed to this extent
The Judgment of the High Court is reported as Baroda Board  Paper Mills Ltd in Liquidation vs Income Tax Officer etc 1976 Vol
Clash of interpretation of section 5301a is the cause in this appeal
We have gone through both the judgments afore referred to very carefully and minutely and have heard learned counsel on the conflicting decisions
There are wide ranging discussions in the interpretative process relating to the word due  occuring in the earlier part of the provision and the words due and payable  in the later part and whether they are different expression 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 over looked and at this juncture we wish to put it to use
Section 530 of the is the same as section 230 of the Indian Companies Act 1913
The old section 2301a of the Indian Companies Act 1913 was analogous to Section 261 of the English Companies Act laying down that there shall be priority on certain debts named therein
In Airedale Garage Co In re Anglo South American Bank vs The Company 1932 Vol
in the Court of Appeal Lord Hanworth Master of Rolls explained the meaning of the provision at page 574 in the following words Now section 264 says that in the winding up of a company there shall be paid in priority to all other debts  certain debts namely parochail or other local rates  assessed taxes  property or income tax  wages or salary of any clerk or servant during four months next before the 534 relevant date  not exceeding fifty pounds and others and it is these debts which are to be marshalled and paid in accordance with the priority given to them by section 264
With regard to local rates it is provided that priority shall be given to All parochial or other local rates due from the company at the relevant date  The relevant date being the date of the appointment of the receiver in this case January 28 1931 and having become due and payable within twelve months next before that date 
Those words are put in to restrict the amount for which priority is given
It is not priority in respect of all the debts for local rates which maybe outstanding at that time the priority is in respect only of such rates as became due and payable within twelve months before in this case January 28 1931
 And further at pages 577 78 as follows The rate was made on April 1 1930 at that time it became due and payable
The alteration that has been made subsequently in September of the year 1931 is to fit into the section to which I have referred and by that section it is to be deemed to have had effect as from the commencement of the period in respect of which the rate was made
In those circumstances it seems quite plain that the sum in contest in the present case must be appropriate to that period and that period alone and although ascertained at a later date it nonetheless belongs to and is founded upon the liability to rates during that period and no other
I find myself therefore unable to give a limited meaning to the words as Eve J has done
I think the words referred to in section 264 of the Companies Act due and payable  meant to refer to a liability in respect of which there had to be a solution Solvendum in futuro of that particular debt and that particular debt is now to be deemed to have accrued within the period of the twelve months next before the relevant date In A Pamaiya s the Companies Act Eleventh Edition 1988 it has been noticed at page 1320 that Section 530 of the has been largely recast and amended in the light of the following recommendations exerpted of the Company Law Committee in paragraph 218 of their Report 535 Section 230 of the Act of 1913 deals with the important subject of preferential payment
The principle underlying this section is that the debts and liabilities enumerated in it should be treated as preferential debts as compared with ordinary unsecured debts
The right of secured creditors other than debenture holders secured by a floating charge are not affected in any way
They remain outside the scope of the winding up proceedings and their security remains unaffected by the provisions of this section
We have set out in the Annexure to our Report the details of our recommendations which broadly follow the provisions of the English 
Briefly the more important of these recommendations are as follows i xxxxx ii xxxxx iii xxxxx 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 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
In this connection we would draw attention to the provisions of clause a of sub section 1 of section 319 of the English Companies Act 1948 under which arrears of land tax income tax profits tax excess profits tax or other assessed taxes rank in priority over other debts of a company only if they have been assessed on the company up to a particular date namely 5th 536 April or prior to the appointment of the liquidator or resolution for the winding up of the company and do not exceed in amount the whole of one year s assessment
It will be noticed that by comparison the provision of clause a of sub section 1 of section 230 of the Indian Companies Act is much wider and gives much more latitude to the income tax authorities for under these provisions arrears to taxes would rank in priority if they have become due and payable within twelve months next before the date on which they are payable irrespective of whether such taxes have been assessed on the company or not
We are aware of the large arrears of income and other taxes which are due by many companies which are in liqudation 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
 In Pennington s Company Law Fourth Edition Chapter 26 titled Rules Common to All Liquidations occuring under the head Preferential Claim and Payments at page 768 it is observed as follows The Inland Revenue may select the unpaid corporation or income tax for any one year as its preferential claim and is not restricted to claiming the tax for the most recent year which ended on or before April 5 immediately preceding the relevant date
Moreover when there are two or more kinds of unpaid taxes the Crown may select different years for different taxes but since advance corporation tax is paid as an advance instalment of the company s liability for corporation tax for the accounting period in which the advance corporation tax falls due it would seem that the Inland Revenue may claim preference for both advance corporation tax and mainstream corporation tax only in respect of the same year
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 permeats the provision the same being that the debts due and 537 payable so as to claim priority must be appropriated to the period within 12 months next before the relevant date and their liability for payment must be funded 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 s case supra 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 buy 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
For the view above taken we allow the appeal of the Company in liquidation and direct that liquidator to re examine the claim for priority in accordance with the interpretation of the provision put by us that is to say he must first ascertain as to whether the liability to sales tax belongs to and is founded within the period of 12 months next before 26 June 1967 and as such due and payable but preserving however the order of the division bench in relation to the view it has taken about penalties
In the facts and circumstances of the case we order that there should be no order as to costs
RP Appeal allowed


Summary:
Section 31 of the Rajasthan University Teachers and Officers Selection for Appointment Act 1974 provides that no teacher in any University in Rajasthan shall be appointed except on the recommendations of the Selection Committee constituted under Section 5 and under Section 32 any appointment made in contravention of Section 31 is null and void
Section 64 of the Act provides that the Selec tion Committee while making its recommendations to the Syndicate shall prepare a list of candidates selected by it in order of merit and shall further prepare a Reserve List in the same order and to the extent of 50 of the vacancies for the post of teachers or officers
The University of Rajasthan invited applications for the post of Professor in the Department of Botany
The Selec tion Committee recommended the name of a candidate in its selection list which was approved by the University Syndi cate and the recommended candidate was appointed as Profes sor
The appellant s name was included in the Reserve List which was to remain valid for one year as per the Syndi cate s 416 resolution
Subsequent to the retirement of the initially appointed Professor the appellant who was on the reserve list was appointed as Professor
The non selected candi dates challenged the appointment of initially appointed Professor as well as of the appellant and a Single Judge of the High Court held the Selection Committee s constitution valid but declared the appellant s appointment illegal on the ground that once a person selected by the Selection Committee is appointed the reserve list gets exhausted and the person named in the reserve list cannot be appointed against a future vacancy
On appeal the Division Bench of the High Court upheld the order of the Single Judge by holding that once a person selected by the Selection Committee joins the reserve list becomes extinct and if some vacancy is caused thereafter
a fresh and de nova Selection Committee procedure is to be started
Against the order of the Division Bench of the High Court appeals were flied in this Court
Allowing the appeals and setting aside the order of the High Court this Court HELD 1
A reserve list is always prepared to meet the contingency of anticipated or future vacancies caused on account of resignation retirement promotion or otherwise
This is done in view of the fact that it takes a long time In constituting a fresh Selection Committee which has a cumbersome procedure and in order to avoid ad hoc appoint ments keeping in view the interest of the student community
422 F 2
The High Court committed a clear error in restricting the scope of reserve list only against the post for which the selection was made and which according to it could only be available to the incumbent in the reserve list if the person recommended in the main list did not join such post
Thus it was wrong in taking the view that a regular vacancy of Professor having arisen on the retirement of initially appointed Professor again a fresh Selection Committee should have been constituted and no appointment on such post could have been made from the reserve list prepared by the Selection Committee
The interpretation given by the High Court is not borne out from any of the provisions of Section 31 Section 5 or sub section 4 of Section 6 of the Rajasthan University Teachers and Officers Selection for appointment Act 1974
423 B 422 C D 417 3
Section 5 of the 1974 Act only provides for the constitution of Selection Committee and the words for every selection  used in sub section 1 of Section 5 only mean that in case of every selection of a teacher or of an offi cer in University a Committee would be constituted of the persons mentioned in sub section i of the said Section 5
423 E 31 A reading of Section 5 with Section 64 makes it quite clear that the Selection Committee constituted shall recommend not only the candidates selected by it in order of merit but shall further prepare a reserve list to the extent of 50 of the vacancies and persons kept in the reserve list will be considered as having been selected for the concerned post and shall be entitled for appointment if any vacancy is caused during the validity period of the reserve list
The suitability of the persons kept in the reserve list is also adjudged by the Selection Committee which is constituted for selection of a teacher in the University
Thus no fault can be found that the incumbent recommended in the reserve list by the Selection Committee was not selected for the con cerned post of teacher
423 G H 424 A B 4
In the instant case the initially appointed Profes sor was going to retire after sometime
Therefore it was perfectly valid to select one more person and to keep him in the reserve list for being appointed on the regular vacancy which was shortly anticipated on account of retirement of initially appointed Professor
The Selection Committee approved and recommended the name of the appellant in the reserve list finding him suitable for appointment on the post of Professor
The Syndicate which is the highest execu tive body in the University had also approved the appel lant s name in the reserve list
Therefore the selection and appointment of the appellant is valid
422 H 423 A 422 G 424 F 5
It is well settled that in matters relating to educa tional institutions if two interpretations are possible the courts would ordinarily be reluctant to accept that interpretation which would upset and reverse the long course of action and decision taken by such educational authorities and would accept the interpretation made by such educational authorities
424 E