Delhi High Court

Kapri Intl Pvt Ltd vs ---- on 27 November, 2012

Author: Indermeet Kaur

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                            Date of Judgment:27th November, 2012

+      CO.PET. 59/1994

IN THE MATTER OF
KAPRI INTL. PVT. LTD.                                  ..... Petitioner
               Through                 Ms. Meenakshi Singh, Adv. for
                                       the Liquidator.
                                       Mr. Muneesh Malhotra, Adv. for
                                       ex-management.
                                       Mr. Rahul Kaushik, Adv. for
                                       Central Excise Department.
                                       Mr.Rajesh Jain, Adv. for the
                                       petitioner.
       CORAM:
       HON'BLE MS. JUSTICE INDERMEET KAUR

INDERMEET KAUR, J. (Oral)

Co. Application No. 477/2011

1. This is an application filed by the Liquidator seeking direction

qua the Central Excise, Ghaziabad (hereinafter referred to as the

'Department') to recall the order of interest of Rs.267.73 lacs;

submission being that the company (M/s Kapri International Pvt. Ltd.-

now in liquidation) is not liable to pay any interest; the principal amount

of Rs.1,68,82,344/- be accepted by the Department in full and final

settlement of his claim.

2. Pleadings are complete.

3. Record has been perused.

4. There were seven adjudication orders which have been passed by

the Department.

5. After some arguments and the inter-se clarifications which have

been made before this Court, the total amount quantified is

Rs.1,85,04,400.76.

(i) Order No. 34/1988

6. This is the first adjudication order. It is dated 28.10.1988. Vide

this order, a penalty of Rs.5 lacs had been imposed upon the company

(in liquidation) which amount has since been deposited by the company

on 03.10.1989 vide Challan of even date and as such no amount is

payable under this head.

(ii) Order No. 40/1996

7. This is the second adjudication order. It is dated 14.08.1996. The

duty payable was adjudicated upon by the Commissioner at Rs.45 lacs;

penalty of Rs.25 lacs was also imposed upon the company. In appeal,

the appellate tribunal had reduced the penalty to Rs.10 lacs. Civil

Appeal was filed against this order which was dismissed on 30.04.2002

confirming the order of the Commissioner. Admittedly Rs. 6 lacs has

been paid by the company under this head. Out of a totally amount of

Rs.71,75,411/-, a sum of Rs.65,75.411/- is thus due and payable under

this head. The judgment reported as 2010 (255) E.L.T. 485 (S.C.)

Commissioner of Central Excise, Delhi Vs. Pearl Drinks Ltd. would not

be applicable as the order of the Apex Court dated 30.04.2002

dismissing the Civil Appeal is clear; the order of the Tribunal had been

set aside and the order of the Commissioner had been restored; the

averments made in the body of the Civil Appeal shows that the entire

order of the Commissioner had been assailed and as such the submission

made on behalf of the company that this order of the Supreme Court did

not cover the penalty amount is an argument without any merit.

(iii) Order No. 40/1990

8. This is the third adjudication order. It is dated 04.01.1991. A sum

of Rs.44,60,859.76 is the amount due as duly and Rs.10 lacs has been

imposed as a penalty; a further sum of Rs. One lac has been imposed as

a redemption fine as well. There is no dispute to this figure. Thus a total

sum of Rs.55,60,859.76 is the amount payable under this head.

(iv) Order No. 17/1991

9. This is the fourth adjudication order. It is dated 27.02.1991. The

amount payable under this head is Rs.42,37,274/- which was the duty

levied upon the company.

(v) Order No. 18/1991

10. This is the fifth adjudication order. It is dated 28.02.1991. The

amount payable under this head is Rs.16,27,685/- which was the duty

levied upon the company.

(vi) Order No. 69/1983

11. This is the sixth adjudication order. It is dated 27.05.1993. The

amount payable under this head is Rs.4,83,171/- which was the duty

levied upon the company.

(vii) Order No. 50/1993

12. This is the seventh adjudication order. It is dated 25.10.1993.

Attention has been drawn to the said order. The amount has admittedly

not been quantified; as such the penalty of Rs. 20,000/- imposed by the

aforenoted order is alone payable by the company. This has been

conceded to by the learned counsel for the respondent.

13. Thus under all the aforenoted seven adjudication orders, an

amount of Rs.1,85,04,400.76 is payable by the company. This figure has

been arrived at after agreement and inter-see clarifications made by the

parties i.e. representations made by the Liquidator and Mr. Rajesh Jain,

amicus curiae has rendered valuable assistance to the Court.

14. The question which has to be answered is on the quantum of

interest.

15. Learned counsel for the respondent has drawn attention of this

Court to the provisions of Section 11AA of the Central Excise Act, 1944

(hereinafter referred to as the said 'Act'); submission being that this

provision relating to interest was notified under the Act w.e.f.

26.05.1995; the liability to pay interest on the aforenoted amount

becomes automatic; this would be even if there is no show cause notice

issued by the company. To support this submission, reliance has been

placed upon 1991 Supp (2) SCC 612 Prahlad Rai and Others Vs. Sales

Tax Officer, Meerut and Others as also 1993 Supp (3) SCC 495

Commissioner of Sales Tax Vs. Qureshi Crucible Centre; submission

being that the levy of interest is by operation of law; it does not require

any separate order. Reliance has also been placed upon 2002 (144)

E.L.T. 347 (Tri.-Del.) Prabhat Zarda Factory Ltd. Vs. Commissioner of

C. Ex. Delhi; submission being that under Section 11-AA, the 'relevant

date' is the date on which the duty was determined and if the assessee

fails to pay the duty within three months from the date of such

determination, interest has to be paid. Further submission being that in

all the aforenoted adjudication orders, except for Order No. 40/1996

(which order was passed on 14.08.1996) all other adjudications had been

made prior to the incorporation of Section 11-AA; the 'relevant date'

would be the date on which the duty was determined and the liability of

the company to pay the interest would arise from that date. Further

submission being that the order passed by the CEGAT, Northern Bench

(in the case of Prabhat Zarda Factory Ltd.) has been upheld by the Apex

Court which had dismissed the Civil Appeal on 19.12.2003.

16. Submissions have been countered. Learned counsel for the

Liquidator points out that the factual scenario in the instant case is

different; the company is in liquidation and Chapter VII of the

Companies Act dealing with the winding up of a company would be

applicable; submission being that in this case, the company had been

wound up on 01.05.1995 and provisions of Section 529-A of the

Companies Act would be applicable. The Central Excise Department is

only a preferential creditor and his debt has to rank after the payment

has been made to the secured creditors and to the workmen; in view of

the judgment of the Supreme Court reported in AIR 2012 SC 11,

Employees Provident Fund Commissioner Vs. O.L. of Esskay

Pharmaceuticals Limited, the Provident Fund Commissioner is to rank

in a still higher priority; further submission being that as on date in view

of the financial status of the company, no interest is payable by the

company. Reliance has been placed upon 1986 (158) 791 Income Tax

Officer Vs. Official Liquidator; submission being that in this case, the

claim of interest demanded by the Income Tax Department had been

considered and the Court had returned a finding that the claim for

interest would be valid when the company was a going concern but the

question of its applicability to a company in liquidation was negatived

which necessarily has to be governed by the provisions of the

Companies Act.

17. In the present case, admittedly, the company had gone into

liquidation on 01.05.1995; Chapter VII of the Companies Act would be

applicable. The Central Excise Department is only a preferential

creditor; he has to be paid only after the claim of the Employees

Provident Fund Commissioner (if any) and the secured creditor as also

the workmen have been met with. The Liquidator R.K. Arora is present

in Court today. The fund position of the company has been detailed by

him as Rs.2,20,00,000/-. It is pointed out that there was only one

secured creditor who has since been paid; the claims of the workmen

have already been adjudicated upon which are approximately to the tune

of Rs.35 lacs.

18. Rule 156 of the Company (Court) Rules 1959 deals with the

quotient of interest. It reads herein as under:-

"156. Interest- On any debt or certain sum, payable at a certain time or otherwise whereon interest is not reserved or agreed for, and which is overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four per cent per annum up to the date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument as a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed form the date of demand until the time of payment."

19. Rule 179 of the Company (Court) Rules 1959 is also relevant. It

reads herein as under:-

"179. Payment of subsequent interest.- In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding-up order or of the resolution as the case may be, up to the date of declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim, after adjusting against the said amount the dividends declared as on the date of the declaration of each dividend."

20. In the present case admittedly no interest was agreed upon

between the parties; argument of the respondent is to the effect that

Section 11AA of the Act is operative by law and interest becomes

payable in view of this statutory provision. Rule 156 envisages a

situation where no rate of interest has been agreed upon between the

parties. It postulates that interest can be paid up to a maximum of 4%.

Rule 179 applies to a situation where the Official Liquidator has a

surplus after payment in full of all the claims which are admitted to

proof . It is only where an excess amount is available that the question

of payment of interest will be considered. As on date as is the

submission by the Official Liquidator, Rs.2,20,00,000/- is lying with

him out of which Rs.35 lacs has to paid to the workmen. The claim of