327. Preferential payments
(1) In a winding up, subject to the provisions of section 326, there shall be paid in
priority to all other debts,—
(a) all revenues, taxes, cesses and rates due from the company to the Central
Government or a State Government or to a local authority at the relevant date, and having
become due and payable within the twelve months immediately 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 immediately before the relevant date, subject to the condition that the
amount payable under this clause to any workman shall not exceed such amount as
may be notified;
(c) all accrued holiday remuneration becoming payable to any employee, or in
the case of his death, to any other person claiming under him, on the termination of his
employment before, or by the winding up order, or, as the case may be, the dissolution
of the company;
(d) unless the company is being wound up voluntarily merely for the purposes
of reconstruction or amalgamation with another company, all amount due in respect of
contributions payable during the period of twelve months immediately before the
relevant date by the company as the employer of persons under the Employees’ State
Insurance Act, 1948 or any other law for the time being in force;
(e) unless the company has, at the commencement of winding up, under such a
contract with any insurer as is mentioned in section 14 of the Workmen’s Compensation
Act, 1923, rights capable of being transferred to and vested in the workmen, all amount
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:
Provided that where any compensation under the said Act is a weekly payment,
the amount payable under this clause shall be taken to be the amount of the lump sum
for which such weekly payment could, if redeemable, be redeemed, if the employer has
made an application under that Act;
(f) all sums due to any employee from the provident fund, the pension fund, the
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 sections 213 and 216,
in so far as they are payable by the company.
(2) Where any payment has been made to any employee of a company on account of
wages or salary or accrued holiday remuneration, himself or, in the case of his death, to any
other person claiming through him, out of money advanced 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 reduced by reason of the payment having been made.
(3) The debts enumerated in this section 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 to 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.
(4) Subject to the retention of such sums as may be necessary for the costs and
expenses of the winding up, the debts under this section shall be discharged forthwith so far
as the assets are sufficient to meet them, and in the case of the debts to which priority is
given under clause (d) of sub-section (1), formal proof thereof shall not be required except in
so far as may be otherwise prescribed.
(5) In the event of a landlord or other person distraining or having distrained on any
goods or effects of the company within three months immediately before the date of a
winding up order, the debts to which priority is given under 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.
(6) Any remuneration in respect of a period of holiday or of absence from work on
medical grounds through sickness or other good cause shall be deemed to be wages in
respect of services rendered to the company during that period.
Explanation.—For the purposes of this section,—
(a) 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 thereunder, 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;
(b) the expression “employee” does not include a workman; and
(c) the expression “relevant date” means—
(i) in the case of a company being wound up by the Tribunal, 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 other case, the date of the passing of the resolution for the
voluntary winding up of the company.