KERALA STATE FINANCIAL ENTERPRISES LTD. versus OFFICIAL LIQUIDATOR, HIGH COURT OF KERALA

Citation: [2006] SUPP. 6 S.C.R. 855 · Decided: 29-09-2006 · Supreme Court of India · Bench: S.B. SINHA, DALVEER BHANDARI · Disposal: Dismissed
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Judgment (excerpt)

., 
KERALA STATE FINANCIAL ENTERPRISES LTD. 
v. 
OFFICIAL LIQUIDATOR, HIGH COURT OF KERALA 
SEPTEMBER 29, 2006 
[S.B. SINHA AND DAL VEER BHANDARI, JJ.] 
Companies Act, 1956-Section 537(2)-Company took loan from 
Appellant which it failed to repay-Properties ,of company attached pursuant 
A 
B 
to recovery proceedings initiated by Appellant under the Kera/a Revenue C 
Recovery Act-Company went for voluntary liquidation-Claim by Appellant, 
a Government company, for precedence in recovery of dues in terms of 
S.537(2)-Maintainability of-Held, not maintainable-S.537(2) had no 
application inasmuch as recovery proceedings initiated by Appellant cannot 
be said to be a proceeding for recovery of any tax or impost or any dues 
payable 10 the Government-Kera/a Revenue Recovery Act, 1968. 
D 
Companies Act, 1956-Sections I 25 & 446-Company-in-liquidation 
had failed to repay loan-Its properties had been attached by a Recovery 
Court under the Kera/a Revenue Recovery Act-Effect of the earlier order of 
attachment in pending company proceedings-Held: An attachment itself 
does not create any charge in the property-By reason of attachment, no · E · 
decree is passed-Distinction between attachment before judgment in terms 
of Order 38 and attachment for execution of decree under Order· 21 
explained-Provisions of the Companies Act shall prevail-Applicability of 
S.125 discussed-Words and Phrases-"Attachment"-Meaning of-Code of 
Civil Procedure, 1908-0rder 21 & 38-Kerala Revenue Recovery Act, F 
1968. 
Recovery proceedings were initiated against a company under the Kerala 
Revenue Recovery Act, 1968 after it failed to repay loan taken from Appellant 
Government company. Properties betpnging to the defaulting company were 
attached. In the meanwhile, the defaulting company went for voluntary G 
liquidation whereupon a provisional liquidator was appointed. 
In the pending company proceedings, Appellant filed application seeking 
leave to proceed with sale of the properties, which was objected to by the 
Respondent, inter alia, on the premise that the charge in respect of the alleged 
855 
I-I 
856 
SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R. 
A debt was not registered with the Registrar of Companies and, thus, it was an 
unsecured creditor. High Court rejected the application. Hence the present 
appeal in which it was contended for the Appellant that the Kera la Revenue 
Recovery Act being a special statute prevailed over the Companies Act, 1956; 
that Section 125 of the Companies Act was not attracted and that in any event 
... 
B 
the dues of Appellant got precedence in terms of sub-Section (2) of Section 
537 of the Companies Act. 
Dismissing the appeal, the Court 
HELD: I. Appellant is a Government company. Its dues are not 
c 
Government dues. The provisions of the Kerala Revenue Recovery Act might 
have been made applicable, but only by reason thereof, dues ofa Government 
company would not become the dues of the Government within the meaning of 
sub-section (2) of Section 537 of the Companies Act. Sub-section (2) of Section 
537 will have no application in the instant case, inasmuch the recovery 
proceeding initiated by Appellant cannot be said to be a proceeding for 
D recovery of any tax or impost or any dues payable to the Government. 
1859-C; 860-G-HI 
2.1. An attachment itself does not create any charge in the property. By 
reason of attachment, no decree is passed. Section 125 of the Companies Act 
contains a special provision. It may not have any application in a case where 
E a decree has already been passed. [859-E; 861-AI 
2.2. The word 'attachment' would only mean 'taking into the custody of 
the law the person or property of one already before the court, or of one whom 
it is sought to bring before it. It is used for two purposes.= (i) to compel the 
F 
appearance of a defendant; and (ii) to seiu and hold his property for the payment 
of the debt. It may also mean prohibition of transfer conversion, disposition 
or movement of property by an order issued by the court. 1859-Ff 
2.3. There, indisputably, exists a distinction between attachment before 
judgment in terms of Order XXXVIII of the Code of Civil Procedure and 
G attachment for execution of a decree under Order XXI thereof. An order of 
attachment before judgment passed under Order XXXVlll seeks to safeguard 
the interests of 1>laintiff so that in the event a decree is passed, the same 
• 
stands satisfied. On the other hand, the essential parties of Orde
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