Section 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 du e 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 (34 of 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 (8 of 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 pens ion 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 distaining or having distained 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 ef fects 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.

1[(7) Sections 326 and 327 shall not be applicable in the event of liquidation under the Insolvency and
Bankruptcy Code, 2016 (31 of 2016).]
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