1. This petition involves a question of some complexity relating to the scope and effect of section 391 of the Companies Act,1956.
2. The petitioners are a public limited company carrying on the business of manufacturing textiles. They will be referred to hereafter as the company. By 1958 the company had suffered huge losses and incurred large debts. A petition for winding up was filed in this court on 28th April,1958, and on the same day an order to wind up the company was passed. The official liquidator was appointed liquidator of the company. He took possession of all the company's properties and records.
3. Prior to the winding-up order, the company has submitted sales tax returns from time to time for the period between 1952 and 1958, and had also paid the amounts of sales tax that were due according to those returns. No assessment orders were, however, passed by the Sales Tax officer concerned.
4. After the winding-up order, the Sales Tax officer sent a letter, dated 8th August, 1958, to the official liquidator enclosing therewith a number of notices under section 14 of the Bombay Sales Tax Act, 1953, in the course of which he intimated that a sales tax inspector would be sent to the office of the official liquidator to examine the company's books of accounts for the different periods for which returns had been submitted by the company. on 10th September,1958, the Sales Tax Officer wrote another letter to the official liquidator requesting him' to register the claim of the sales tax office for the amount of sales tax due from the above dealer(the company), if it is bound after verifying the account books of the dealer.' He added that a specific claim would be submitted as soon as the assessment orders were passed and that the claim of the department should be registered (exhibit `C' to the affidavit in rejoinder.)
5. Some time after the winding-up order, the company's textile mills began to be run by the Government of Maharashtra in accordance with the Unemployment Relief Scheme under orders which were passed by this court from time to time. For some reason the outstanding assessment of the company to sales tax was not completed during this period. On 28th August, 1960, some two parties sponsored a scheme of compromise or arrangement for the reconstruction of the company. By an order dated 13th January,1961, this court directed the official liquidator to convene five separate meetings of contributories and different classes of secured, unsecured and preferential creditors. A public notice of these meetings was published in several newspapers, and individual notices were also sent to all creditors. It is not disputed that the sales Tax Officer,'A' Ward, Unit 1, Bombay (the 5th respondent to this petition) was served with one such notice. Meetings of creditors and contributories were accordingly held and the scheme of reconstruction was passed in these meetings either unanimously or by the majority required by section 391 of the Companies Act,1956.
6. The official liquidator then applied to this court for sanctioning the scheme of reconstruction. A public notice of the date of hearing of that petition was published in various newspapers, and individual notices were again served on the company's creditors. It is common ground that such an individual notice was served on the Sales Tax Officer,'A' Ward, unit 1, Bombay(the 5th respondent.) The petition was heard by Mr. Justice Mody on 28th April,1961.At the hearing the proposed scheme of reconstruction was not opposed by anyone on behalf of the Sales tax department. After hearing the parties who had appeared, the learned judge sanctioned the scheme of reconstruction. From the judgment of Mr. Justice Mody as well as from the terms of the scheme itself(exhibit`C' to the petition)it appears that the two parties who had sponsored the scheme had offered a guarantee for advancing a certain amount against the issue of debentures in their favour. One of the terms of the scheme was that all unsecured creditors,other than those who were employees of the company and those who held preferential claims, were to be paid 4 annas in a rupee' in full and final settlement of their respective claims.' In the order by which the scheme was sanctioned, it was declared that the scheme was' binding on the secured creditors, unsecured creditors (employees of the company),unsecured creditors(other than the employees of the company), preferential creditors and the contributories of the company and also on the said company and its official liquidators.'It is not disputed that if the sales tax department was a 'creditor'in these proceedings, it was in the position of an 'unsecured creditor (other than the employees of the company)' and was entitled to receive only 4 annas in a rupee in full and final settlement of its claim.
7. Some time after the scheme was sanctioned, the Sales Tax Officer,'A' Ward,Unit 1, Bombay (the 5th respondent),proceeded to assess the company in respect of various periods from 1st November, 1952 to 31st March, 1957.Assessment orders for these periods were passed on different dates between 27th Decemeber,1962, and 31st May, 1963(exhibit `H' to the petition).The amount of the assessment orders came to over one and half lakhs of rupees. The company filed appeals against the assessment orders, and while doing so, the company paid 25 per cent. of the amount assessed in each case,that being the amount payable by the company according to the terms of the scheme of reconstruction. The appeals filed by the company against the assessment orders are still pending.
8. On or about 11th July,1963, the Sales Tax Recovery Mamlatdar, Bombay (2nd respondent to the petition), served two demand notices on the company calling upon the company to pay about Rs.53,000 and Rs. 8,000 respectively. The same officer served another notice on the company, dated 15th July, 1963, for the payment of an amount of Rs.43,000 and odd. These amounts were the unpaid balance of the assessment orders. The company was warned by these notices that, on its failure to pay the amounts, the same would be recovered as arrears of land revenue. The present petition has been filed by the company for an appropriate writ or direction under article 226 of the Constitution for quashing these demand notices.
9. A preliminary objection to the petition was taken by Mr. Banaji on behalf of the respondents. Mr. Banaji argued that an equally efficacious remedy was available to the company by way of filing appeals from the assessment order under section 30 of the Bombay Sales Tax Act, 1953, that such appeals have actually been filed by the company, and that the company have, therefore, no right to invoke the extraordinary jurisdiction of this court under article 226 of the Constitution by filing this petition. I am not disposed to accept this contention. The grievance of the company in this petition is not against the assessment orders, it is against the demand notices mentioned above. The company claims that by virtue of section 391 of the Companies Act, 1956, the sales tax department is entitled to only 25 percent. of the amount for which the company has been assessed, that that the attempt of the sales tax department to recover a large amount is contrary to law. A petition under article 226 of the Constitution is an appropriate remedy for the relief claimed.
10. Sub-section (1) of section 391 of the Companies Act, 1956, provides that where a compromise or arrangement is proposed, the court may order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be , to be called held and conducted in such manner as the court directs.
11. Sub-section (2) of section 391 is in the following terms:
'If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company.'
12. In the present case the company relies on sub-section (2) of section 391 in support of its plea that the sales tax department, being one of the creditors of the company, is bound by the scheme of reconstruction sanctioned by the court and is not, therefore, entitled to recover more than 25 per cent. of its claim. The respondents contend, on the other hand, that the sales tad department did not become a 'creditor' of the company till the orders of assessment were passed, that that the department was not a 'creditor' of the company at the time when the scheme of reconstruction was sanctioned by the court, and is not bound to confine its claim to 25 percent. of the amount of sales tax to which the company has been assessed. The question to be decided, therefore, is whether the sales tax department (i.e., the Government of Maharashtra) was a 'creditor' of the company on 28th April,1961, when Mr. Justice Mody sanctioned the scheme of reconstruction.
13. It will be noticed that section 391 applies to a company which is being wound up as well as to a company which is not being wound up. It cannot, however, apply to a company which is in a sound financial condition. In this connection , a reference may be made to clause(a) of section 390, which says that the expression 'company'in section 391'means any company liable to be wound up under this Act.' A provision corresponding to clause (a) of section 390 was found in section 153(6) of the Indian Companies Act,1913.In the case, In re Travancore National and Quilon Bank Ltd.  9 Comp. Cas.14; A.I.R.1939 Mad.318, a single judge of the East Punjab High Court dissented from that view According to the learned judge, the fact that unregistered companies were covered by section 153 of that Act was not the result of sub-section (6) of recovered by section 153 of that Act was not the result of sub-section (6) of section 153. The learned judge held that the expression' any company liable to be wound up' has a restricting effect,inasmuch as it confined the application of section 153 to companies whose condition was much that they were exposed to winding up. Whatever may be the correct meaning of the expression' any company liable to be wound up under this Act,' Which occurred in section 153(6) of the Indian Companies Act,1913, and which now occurs in clause(a) of section 390 of the companies Act,1956,it seems to me obvious that section 391 of the present Act which empowers the court to sanction a compromise or other arrangement can have no application to a company which is in a sound financial condition. Section 391 makes it possible for a sufficient majority of creditors or members of a company, with the sanction of the court, to override the wishes of a minority of creditors or members in matters pertaining to their legal rights. Such a provision cannot apply to a normally functioning company. Section 391 of the present Act corresponds with section 206 of the English Companies Act,1948, and the following observation on that section is found i n Buckley of the Companies Acts,thirteenth edition ,page 410:
'A scheme under it (i.e.,under section 206) is an alternative mode of liquidation, which by operation of law relieves the company and its contributories from liability further than that which is contemplated or imposed by the scheme.'
14. This observation was quoted with approval by Mr. Justice Patkar in his judgment in Motilal Kanji and Co. v. Natvarlal M. Jhaveri 2 Comp. Cas.64; 33 Bom L.R.1495 ; A.I.R.1932 Bom 78. while explaining the purpose of section 153 of the Indian Companies Act,1913.It would, therefore, follow that although section 391 of the present Act applies to a company which is being wound up as well as to a company which is not being wound up, the word'creditor'in that section should have the wide meaning which that word has in liquidation proceedings. In other words, if the sales tax department in the present case was a 'creditor' of the company during the liquidation proceedings which preceded the order under section 391, the department should also be regarded as a 'creditor 'of the company in interpreting the effect and binding character of the said order.
15. It was argued by Mr. Banaji that a tax does not become payable till it is assessed and that the department concerned cannot be regarded as a 'creditor' of the assessee till the order of assessment has been passed. It is true that the word 'creditor' is normally understood to mean a person to whom a debt is due. The department concerned does not become a 'creditor' of an assessee in that sense till the amount of the tax payable by the latter is assessed. It is equally clear that the liability to pay the tax arises earlier, and that the liability becomes quantified when the order of assessment is made. This is clear from the provisions of the Bombay Sales tax Act, 1953, under which the company was assessed in the present case. Sub-section (1) of section 14 of that Act lays down that the amount of the tax 'due' from a registered dealer shall be 'assessed' separately for each year during which he is liable to pay the tax. According to rule 4 of the Bombay Sales Tax (Procedure) Rules, 1954, every registered dealer has to furnish either quarterly returns or monthly returns to the Sales Tax officer, and rule 10 makes it clear that the tax 'due for any quarter or month' is to be paid before furnishing the return for the quarter or the month, as the case may be. Sub-sections (2) and (3) of section 14 of the Act provide that if the Collector is satisfied that the returns furnished in respect of any period are correct and complete, he shall assess the amount of the tax on the basis of the returns, and that where he is not so satisfied, he will make a further inquiry and assess the amount of the tax due from a dealer. It is thus clear that the sales tax becomes due from a dealer at the end of every quarter or month, as the case may be, and the amount of the tax depends upon the extent of his dealings during that quarter or that month. The quantification of that amount takes place when the assessment order is subsequently made.
16. In this connection, Mr. Mistree for the company relied on certain observations of the Privy Council in Wallance Brothers and Co. Ltd. v. Commissioner of Income-tax . In that case their Lordships pointed out that the income-tax for a particular period or year of assessment is a charge in respect of the previous year or period. Their Lordships went on to say:
'But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed.'
17. On the other hand, Mr. Banaji relied on the following observations of the Privy Council in Doorga Prosad v. Secretary of State . relating to the Income-tax Act, 1922:
'In their Lordships' opinion, although income-tax may be popularly described as due for a certain year, it is not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but it is due when demand is made under section 29 and section 45. It then becomes a debt due to the Crown, but not for any particular period.'
18. Mr. Banaji also relied on the decision of the Full Bench of the Calcutta High Court in In re Recols (India) Ltd.  4 S.T.C. 271 . There the question for determination was whether a certain amount of sales tax due under the Bengal Finance (Sales Tax) Act, 1941, was or was not entitled to priority under section 230 of the Indian Companies Act, 1913. The assessment order in that case had been made only a few days before the order to wind up the company, concerned was passed, but the assessment was in respect of a period which was anterior by more than one year to the date of the winding-up order. The amount to which the company was assessed was entitled to priority if it became 'due and payable' within 12 months before the winding-up order. The court held that the amount of the assessment became due and payable when the assessment order was passed, and not earlier when the period in respect of which the return was made had expired. Mr. Justice Sinha, who delivered a separate supporting judgment in that case, held that the sales tax became 'due' immediately upon the expiry of the period in respect of which the return was made, but that it became 'payable' when the order of assessment was subsequently passed.
19. In my view, there is no conflict in the various observations quoted above on which reliance was placed by Mr. Mistree and Mr. Banaji respectively. A tax becomes due prior to assessment, but it becomes a debt when the assessment order is passed. In the present case the company did not owe a specific debt to the sales tax department when the scheme of reconstruction was sanctioned under section 391, but the sales tax, the quantity of which was yet to be determined by the officers concerned, was due from the company at that time.
20. There can, however, be no doubt that the word 'creditor' when used in the context of winding-up proceedings is not confined to a person who is entitled to recover a specific debt from the company in liquidation. The word has a much wider meaning. Section 528 lays down that in every winding-up 'all debts payable on a contingency, and all claims against the company, present of future, certain or contingent, ascertained or sounding only in damages shall be admissible to proof' against the company. This section may be read along with section 474, which provides:
'The court may fix a time or times within which creditors are to prove their debts or claims, or to be excluded from the benefit of any distribution made before those debts or claims are proved.'
21. It is clear that the word 'creditor' in section 474 includes a claimant, and according to section 528 a claimant may have a claim which is present or future, certain or contingent. ascertained or sounding only in damages. In the present case, when the scheme for reorganisation of the company was sanctioned by the court, the sales tax department had a claim against the company, even though the claim might have been a future claim or even a contingent claim. The sales tax department, therefore, was a 'creditor' of the company.
22. In order to show that the word 'creditor' does not have such a wide meaning even in liquidation proceedings, Mr. Banaji relied on the case in In re Pen-Y-Van Colliery Co (1877) 6 Ch. D. 477. It was there held that a claim against a company for unliquidated damages on account of alleged fraudulent representation does not constitute the claimant a creditor, so as to entitle him to petition either for a winding-up order or a supervision order. It was observed that before he could so petition, he must make himself a creditor by changing his claim for damages into a judgment. It was found in that case, on facts, that the petitioner who had applied for the winding up of the company had, in fact, no claim at all. I doubt whether, in the present condition of the law, a person who has a god claim for unliquidated damages against a company would be precluded from filing a winding-up petition. The present position is that any creditor or creditors, including 'any contingent or prospective creditor or creditors, can apply to the court for winding up of a company (vide section 439 of the Companies Act, 1956). It has been pointed out in Buckley on the Companies Acts, thirteenth edition, page 464, that:
'A contingent or prospective creditor has, since the 1908 Act, been empowered to petition. He could not formerly do so.'
23. Moreover, even formerly the position was that a person who was entitled to unliquidated damages could prove his claim in liquidation proceedings. The case, In re Trent and Humber Co.: Ex parte, Cambrian Steam Packet Co. (1868) 4 Ch. A 112. is an instance where damages for breach of contract where assessed during liquidation. It is but natural that in winding-up proceedings the word 'creditor' should have a very wide meaning, for it is the purpose of winding up that all legitimate claims against the company, of whatever nature they may be, should be settled and satisfied as far as possible.
24. There is, moreover, a direct authority which shows that the word 'creditor' in section 391 of the Companies Act, 1956, is used in a wide sense so as to include every claimant. Section 391 of the Companies Act, 1956, corresponds with section 206 of the English Companies Act of 1948, and the origin of that section is found in section 2 of the Joint Stock Companies Arrangement Act, 1870. Section 2 of the Joint Stock Companies Arrangement Act, 1870, applied to companies which were in the course of being wound up, and it empowered the Court of Chancery to call a meeting of creditors or any class of creditors and to sanction a compromise or arrangement, if it was agreed to by a certain majority of the creditors or class of creditors, as the case might be. By later enactments, this provision was extended to companies which were not in the process of being wound up, but which were liable to be wound up. The meaning of the word 'creditor' in section 2 of the Joint Stock Companies Arrangement Act, 1870, was considered in In re Midland Coal, Coke and Iron Co.  1 Ch. 267. In that case the lessee of certain mines assigned his lease to a company which covenanted to indemnify him against liability thereunder. The company went into liquidation, and a scheme of arrangement under the Joint Stock Companies Arrangement Act, 1870, was adopted and approved by the court for forming a new company which should take over the assets and liabilities of the old company. After the new company was incorporated the lessee applied in the liquidation to have a sum provided to meet his contingent liability for rents, royalties, and breaches of covenant. It was held that the Joint Stock Companies Arrangement Act, 1870. applied to every person having a pecuniary claim against a company, whether actual or contingent, and that the lessee was bound by the scheme and that his application railed. In delivering the judgment of the appeal Court in that case, Lindley L.J. observed :
'Considering that that Act was passed in order to enlarge the powers conferred by section 159 of the Companies Act, 1862, we agree with Mr. Justice Wright (i.e., judge of the court below) in thinking that the word `creditor' is used in the Act of 1870 in the widest sense, and that it includes all persons having any pecuniary claims against the company. Any other construction would render the Act practically useless.'
25. After this decision of the Appeal Court, the language of section 2 of the Joint Stock Companies Arrangement Act, 1870, was repeated in subsequent English Acts till we come to section 206 of the English Companies act, 1948, and we further find that the language of that section is the same as the language used in section 391 of our Companies Act of 1956. It is a well established canon of construction that the legislature is presumed to know the interpretation put by courts on the language employed in a statute. It must, therefore, be held that the word 'creditor' in section 391 of the Companies Act, 1956, is used `in the widest sense' so as to include all persons having pecuniary claims against a company.
26. A directly contrary decision was recently given by a single judge of the Allahabad High Court in Tika Ram and Sons (P.) Ltd. v. Commissioner of Income-tax : 51ITR403(All) . In one respect the facts of that case were materially different from the facts before me. There a private company had filed a return of its income for assessment to income-tax, but before the assessment was made, the company was ordered to be wound up and the official liquidator took possession of the assets of the company. In the statement of affairs of the company which was made to the official liquidator under section 454 of the Companies Act, 1956, he income-tax department was not shown as a 'creditor', so far as the tax liability for the assessment in question was concerned. A compromise and arrangement was later proposed, but no notice was given to the Income-tax Officer of the meetings of creditors which were was given to the Income-tax Officer of the meetings of creditors which were held for considering the compromise and arrangement. The scheme was sanctioned by the court. Thereafter the Income-tax Officer issued a notice on the company under section 23 of the Income-tax Act, 1922, calling upon the company to produce its accounts. The company filed a writ petition in the High Court to restrain the Income-tax Officer from proceeding with the assessment. On these facts, the learned judge held that the Income-tax Officer was not a 'creditor' within the meaning of section 391 and was, therefore, not bound by the compromise and arrangement sanctioned by the court. The learned judge observed in his judgment:
'The relationship of creditor and debtor between the revenue department and the assessee cannot come into existence until an assessment has been made. Mere liability to pay tax, as contended by the learned counsel for the petitioner, is not sufficient to establish the relationship of creditor and debtor. The learned counsel for the petitioner has not been able to cite any direct authority for the proposition that even before an assessment is made the income-tax department becomes a creditor and it is obliged to prove its claim against the company in liquidation before the liquidator.'
27. With great respect, I am unable to agree with these observations. It is clear from the judgment that the decision in In re Midland Coal, Coke and Iron Co.  1 Ch. 267. was not brought to the notice of the learned judge. I doubt whether the learned judge would have adopted the above view, if his attention were drawn to that case. It is not necessary that a person, in order that he may be a 'creditor' in liquidation proceedings, would have an ascertained amount payable by the company. He is a 'creditor' even if he has against the company a claim present or future, certain or contingent, ascertained or sounding only in damages. It is true that no individual notice was given in the above case to the Income-tax Officer concerned, nor had the Income-tax Officer entered appearance in the liquidation proceedings. Section 392 of the Companies Act, 1956, provides that the High Court which sanctions a compromise or an arrangement under section 391 has the power to supervise the carrying out of the compromise or arrangement, to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement, and where it is satisfied that the compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily, to make an order winding up the company. It appears to me, with great respect, that if it was found in the above case that it was contrary to justice to grant the petition of the company and restrain the Income-tax Officer from proceeding with the assessment, the petition could have been refused and the parties could have been directed to approach the company judge under section 392. I cannot, however, agree that, on the facts of the case, the income-tax department was not a 'creditor' of the company within the meaning of section 391.
28. It is not in dispute in the case before me that if the sales tax department was a 'creditor' of the company within the meaning of section 391, as held by me, it was an unsecured creditor and is, therefore, entitled to recover only 25 per cent. of its claim. It is also not in dispute that 25 per cent. of the total amount of the assessment orders has already been deposited by the company with the sales tax department. It must, therefore, be held that the respondents are not entitled to recover the amounts for which the impugned demand notices were issued on the company.
29. In the result, the petition is granted and the remand notices (exhibits I and J to the petition) are quashed. The respondents will pay the petitioner's costs as taxed.