Schedule 1 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986
THE SCHEDULE [See sections 18, 19, 20 (1), 21 (1), 22 (2) and 25 (1)] ORDER OF PRIORITIES FOR THE DISCHARGE OF LIABILITIES OF THE COMPANY PART I Category I Employees’ dues on account of unpaid salaries, wages, provident fund, Employees’ State Insurance contribution or premiums relating to the Life Insurance Corporation of India and any other amounts due to employees in respect of any period whether before or after the date of taking over of the textile undertakings. Category II Secured loans obtained from nationalised banks and public financial institutions, other than the National Textile Corporation, in respect of any period whether before or after the date of taking over of the textile undertakings. Category III Any credit availed of for trade or manufacturing purposes during the post-take over management period. Category IV Revenue, taxes, cesses, rate or other dues to the Central Government, State Government and local authorities for the period after the date of taking over of the textile undertakings. PART II Category V Revenue, taxes, cesses, rate or other dues to the Central Government, State Government and local authorities or State Electricity Boards for the pre-take over management period. Category VI Any credit availed of for trade or manufacturing purposes during the pre-take over management period. 13
Summary
- The Schedule creates a strict ranking system for paying off people and groups who are owed money by the Company.
- Category I has the highest priority and covers all employee dues, like unpaid wages and provident funds.
- Category II covers secured loans from public financial institutions and nationalized banks.
- The schedule is split into Part I (post-takeover debts and taxes) and Part II (pre-takeover debts and taxes), with post-takeover items getting higher priority.
- If the money runs out while paying a higher category, the claims in that category are reduced equally, and lower categories get nothing at all.
Practical examples
FAQ
1. Who gets their money first according to the Schedule?
Employees get paid first, as their unpaid salaries and funds are in Category I.
2. Do all taxes get paid at the same time?
No, taxes from the period after the takeover (Category IV) are paid before taxes from the period before the takeover (Category V).
3. What happens if there is only enough money to pay half of the claims in a category?
The claims in that specific category abate in equal proportions, meaning everyone in that group gets an equal percentage of what they are owed, and the groups below them get nothing.
4. Where does a trade supplier from before the takeover rank?
They rank dead last in Category VI.
Test yourself
Q1.Under Schedule 1 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, which of the following debts belongs in Category I, giving it the highest priority?
Q2.Under Schedule 1 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, how do Sections 18 and 19 apply to a person who supplied raw cotton to the mill before the takeover?
Q3.Under Schedule 1 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, what instruction does Section 20 give the Commissioner if they are examining claims and realize the funds will run out entirely in Category II?
Q4.Under Schedule 1 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, what is the crucial difference between a tax claim placed in Category IV versus one placed in Category V?
Q5.Under Schedule 1 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, if there is a surplus left after paying Category I, but it is not enough to meet all the Category II secured loan claims in full, how does Section 19 resolve this?