1. This is a petition under Section 559 of the Companies Act 1956 (Act I of 1956) seeking a declaration that the dissolution of the company, M/s. Vemulapalli & Sons, (Private) Ltd., Suryapat, Nalgonda, was void.
2. The petitioner is the Income-tax Officer, Companies Circle Hyderabad. The material facts alleged are these; M/s. Vemulapalli & Sons (Private) Ltd. Suryapat, hereinafter to be referred as the Company, was a private company, which was formed on 25-9-1956 with the object of doing business in iron ore. The shareholders of the company were Sri Vemulapalli Bhaskara Rao, his wife Smt. Sugunamma and their sons Vageshwar Rao & Gopal Rao, each of them holding 50 shares of Rs. 100 each. The total paid-up-capital was Re. 20,000. The first year's accounts were closed on 31-12-1957. The Company was assessee and as such filed a return of its income for the assessment 1958-59 on 27-2-1959. Under Section 23-B of the Income-tax Act, 1922 a provisional assessment was made on the basis of the return and assessee made payments aggregating Rs. 6,395-15. The regular assessment for the year 1958-59 was, however, made on 20-3-1963 on the best judgment under Section 23 (4) of the Act on an income of Rs. 80,000 as against the returned income of Rs. 13,753 by the assessee company. A demand was made for the balance of the tax payable on 11-4-1963. But meanwhile it transpired that at a special meeting of the shareholders, a resolution was passed for the voluntary winding up of the company on 16-5-1960. Baskara Rao was appointed as Liquidator to wind up the affairs of the Company. The Registrar of companies intimated the Income-tax Officer, Nalgonda, about the Company being voluntarily liquidated and V. Bhaskara Rao having appointed a Liquidator. The said intimation was addressed to the Income-tax Officer, Nalgonda by a letter dated 17-12-1960 which is said to have reached the concerned Income-tax Officer on 23-1-1961. The said Bhaskara Rao find Income-tax returns for the assessment years 1959-60 and 1960-61. For 1959-60 the return pertained to the period prior to the resolution for the winding up of the company, and for the year 1960-61 he filled as Liquidator. The return for 1959-60 showed a loss and in the return 1960-61 he stated that the company did not carry on any mining operations but merely purchased and sold iron ore and that there was a net profit of Rs. 72. Thereafter he filed a final statement of account of Companies under Section 509. The Registrar on receiving the account registered it on 15-3-1963. Under Section 509 (5) as it read before the amendment of 1965, the company shall be deemed to be dissolved on the expiration of three months from the date of the Registrar registering the account. So, the dissolution came into effect from 15-6-1963.
3. This petition was filed on 14-6-1965 alleging that the company acted fraudulently. The relevant allegations are that with a view to defraud the creditors in general and the applicant-department, i.e., the Income-tax Department in particular, the company went into voluntary liquidation. The Liquidator or the director had not made any provision for income-tax demand against the company, In para 5 of the petition it is alleged that the evasive and non-co-operative attitude of the Liquidator in respect of the pending assessments and in expediting the steps to have the company dissolved established the mala fide and fraudulent intention. It was further alleged that the Department was deliberately kept in the dark about the proceedings for liquidation. The liquidation proceedings went on behind the back of the department. Unless the dissolution was declared void, the Department stood to suffer hardship and irreparable loss.
4. Bhaskara Rao, the Liquidator, filed a counter-affidavit that the company was registered on 27-9-1956 as a private limited company and that its main object was to purchase, take on lease or otherwise acquire mines or mining rights and to carry on the business of buying and selling minerals, etc. Within a year of the formation of the company, complications arose not only on account of the litigation regarding the mines, but also by reason of the establishment of the State Trading Corporation. The financial condition of the company began to deteriorate and there was no prospect of any success in the venture for which the company was formed. It was therefore decided at the meetings of the shareholders and the creditors of the company to wind up the company voluntarily and he was appointed as Liquidator. On the date of the winding up, viz. 16-5-1960 he and respondents 4 to 6 were the creditors of the company to the extent of Rs. 70,337-37. The Company had no assets except certain debts due to it of the extent of Rs. 58,558-04. The company had been running at a loss during the accounting years ending with 31-12-1958 and 31-12-1959. As regards the assessment year 1958-59, the company returned a profit of Rs. 13, 754 and a tax of Rs. 6, 395-15 was paid on the basis of the provisional assessment, under Section 23-B of the Act. The full amount of the tax on the actual income of the company for the assessment year 1958=59 having been paid, it was impossible for the Liquidator to imagine that a fantastic demand of tax would be completed raised several years later by the Income-tax Department. The Liquidation proceedings took nearly three years to be completed. The notices and the notifications required by the Companies Act to published in the Official Gazette were duly published. He repudiated the allegations of mala fides and fraudulent intention on the part of the Liquidator or the directors in winding up the company. He questioned the locus standi of the department to present the petition as a creditor. He denied the allegation that the liquidation proceedings went on behind the back of the department. He further questioned the petitioner's right to relief under Section 559(1) of the Companies Act as more than two years had elapsed from the date of the dissolution.
5. Respondents 3 to 6 adopted the counter of Bhaskara Rao. The 2nd respondent, the Registrar of Companies filed an affidavit stating that the date of incorporation of the company was 17-12-1956. The shareholders of the company were respondents 3 to 6 each holding 50 shares of Rs. 100 each. The paid up capital was Rs. 20,000. The company was taken into creditor's voluntary winding up and a special resolution was passed on 15-5-1960. The record of the company disclosed that the resolution was passed by the creditors on 16-5-1960. The notice of the appointment of the Liquidator was published in the Andhra Pradesh Gazette dated 16-5-1960. The company filed the statutory returns, viz., special resolution for voluntary winding up, notice of resolution passed by creditors and the notice by the Liquidator of his appointment under Section 192, 501 and 516 respectively of the Act with the respondent. The department was not shown as a creditor. The fact of taking the company into liquidation was duly intimated to the Income-tax Officer, Nalgonda, by the Registrar of Companies by his letter dated 17-12-1960. The final return with the statement of account filed by the Liquidator was registered on 15-3-1963 and the company was considered to have been dissolved on 15-6-1963 under Section 509 (5) of the Act.
6. The Income-tax Officer filed a reply putting the Liquidator to proof of his allegations and affirming the allegations made in the petition.
7. The points, which arise for consideration, in the application are:
(1) Whether the Department is a creditor and the application is maintainable ?
(2) Whether the application for relief under Section 559(1) of the Act is barred by time ?
(3) Whether the company was wound up to defraud the creditors in general and the applicant-department in particular ?
(4) Whether the Directors have not made any provision for income-tax demand against the company before the Company went into voluntary liquidation ?
(5) Whether the Liquidator was evasive and non-co-operative in respect of the pending assessment and acted with a mala fide and fraudulent intention /
(6) Whether the department was deliberately kept in the dark about the liquidation proceedings ?
(7) Whether the Department Petitioner is entitled to have the dissolution declared void under Section 559(1) of the Act ?
8. Point 1: The application contemplated under Section 559(1) of the Act is to be by the liquidator of the company or by any other person who appears to the Court to be interested. The Income-tax Officer, Companies Circle, is the petitioner. He could maintain the applications as creditors, because a creditor is certainly a person interested. Vide In re Spottiswoode, Dixon & Hunting Ltd. (1912) 1 Ch D 410. The regular assessment order for the assessment year 1958-59 was passed on 20-3-1963. The application was made on 14-6-1965. The application is maintainable.
9. Point 2: The learned counsel relies on the language of the section in support of the contention that Court can give relief under Section 559(1) by way of declaring the dissolution to be void only within two years of the date of dissolution and not thereafter. The words of the section may be appropriately read here:
'559 (1) Where a company has been dissolved, whether in pursuance of this part of Section 394 or otherwise, the Court may at any time within two years of the date of the dissolution, on application by the liquidator of the company or by any other person who appears to the Court to be interested, make an order, upon such terms at the Court thinks fit, declaring the dissolution to have been void and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.'
10. The section has been interpreted to mean that only the application should be made within two years and that the Court could pass an order at any time thereafter, vide In re Scade Ltd., (1941) 2 All ER 466, 467. In that case the corresponding section of the English Companies Act (Section 294) came up for interpretation. The reasoning of the learned Judge was:
'It appears to me that, if one reads the section against the background on which the Court necessarily acts, and has regard to the fact that neither litigant can control the date at which the Court makes its order, the period of two years referred to is to be decided by taking the period between the date of the dissolution of the company and the date when the application under Section 294 is made. Therefore, I hold that there is jurisdiction to make the order in the case'.
11. I adopt the reasoning of the learned Judged and find that the interpretation put by the learned counsel cannot be acceded to. The relief prayed for under Section 559(1) of the Act is therefore not barred by time.
Point 3: The special resolution voluntarily winding up the company dated 16-5-1960 is as follows:
'A special meeting of the shareholders of M/s. Vemulapalli & Sons (Private) Ltd., held on 15th May 1960 at 10 a.m. at the registered office of the Company at Suryapet, resolved to wind up the company voluntarily due to financial position with effect from the above date.
Std. V. Bhaskar Rao
For Vemulapalli & Sons Private Ltd.'
The resolution of Vemulapalli & Sons (Private) Ltd., Suryapet, at a meeting of the creditors dated 5-11-1962 shows the creditors and the debts owing to them and the realisable debts of the company. The amounts owing were shown as Rs. 70,337-37 and the debts realisable were shown as Rs. 58,588-04. In the counter the debts owing and the debts realisable were also shown as above. It was also stated in the counter that provisional Income-tax of Rs. 6,395-15 was paid under Section 23-B for the year in question. i.e., 1958-59. That payment was made in three instalments prior to the company going into voluntary liquidation. It does not appear that on the date of winding up there was any demand as such for income-tax payable for the year in question. No creditor has complained of the voluntary winding up there was any demand as such for income-tax payable for the year in question. No creditor has complained of the voluntary winding up. It is difficult to find support for the allegation that with a view to defraud the creditors in general and the Income-tax Department in particular the company went into voluntary liquidation. The point is held against the petitioner-department.
Point 4: The regular assessment for the year in question, 1958-59 was made on 20-3-1963 raising a demand of Rs. 34,804-85 giving credit to the tax already paid. Under Section 509 a final account of the winding up was sent by the Liquidator to the Registrar of Companies on 26-11-1962, and the said account was registered by the Registrar on 15-3-1963. These facts are also confirmed by the Registrar in his affidavit.
The learned counsel has not been able to tell me where the omission occurred, i.e., the omission of not noting the Income-tax demand. The question of making provision for the income-tax demand for the relevant year before the Special resolution for voluntary winding up does not therefore arise.
Point 5: The only argument pressed before me on behalf of the petitioner is that adjournments were asked for before the Income-tax Officer from time to time and obtained and that inasmuch as the company became dissolved statutorily after the expiry of three months from the date of registration of the final account by the registrar, these adjournments must be deemed ineffective. The learned counsel would say that the intention to defraud the income-tax department has to be inferred from the circumstances.
It is difficult to accede to this contention. The Income-tax Officer concerned is presumed to have granted adjournments for good and sufficient reasons. It is not possible to presume that the Income-tax Officer concerned was defrauded every time he had granted an adjournment. The petitioner has not placed before me any particulars of the adjournments granted. It will be seen in the discussion under the appropriate issue that the Income-tax Officer was intimated of these liquidation proceedings. It is brought out clearly that the assessment also was made after the final accounts of the winding up were registered by the Registrar of Companies. The dissolution followed under the statutory provision after the expiry of three months thereafter. I do not therefore consider that any fraud could be attributed to the Liquidator as alleged by the petitioner.
12. Point No. 6: The Registrar Companies has specifically stated in his affidavit that he intimated the fact of the company going into liquidation to the Income-tax Officer. Nalgonda by letter dated 17-12-1960. The learned counsel for the Department argued that there was no Income-tax Officer at Nalgonda in charge of the Companies and this intimation was therefore ineffective. The letter produced by the Department has been perused by me and it bears the endorsement thereon that it was directed to the concerned office. 'The reply of the petitioner is that it reached the concerned office on 23-1-1961'. In the face of these facts, it is difficult to accept the petitioner's allegation that the department was deliberately kept in the dark about the liquidation proceedings.
13. Point No. 7: One of the accepted grounds for setting aside the dissolution is fraud. But the fraud alleged has to be strictly proved. That is the accepted position, though, the section itself does not state so. Vide in re Pinto Silver Mining Company, (1878) 8 Ch D 273; In re London and Caledonian Marine Insurance Co. (1879) 11 Ch D 140 and Coxon v. Gorst, (1891) 2 Ch D 73 and inasmuch as the fraud alleged has not been proved as found by me under point 3, the petitioner is not entitled to the relief prayed for.
14. In the result, the petition is dismissed, but, in the circumstances, without costs.
15. Petition dismissed.