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income-tax Officer Vs. Mambad Timber and Estates (P.) Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberCompany Petition No. 1 of 1972
Judge
Reported in[1973]43CompCas332(Ker); [1973]89ITR312(Ker)
ActsCompanies Act, 1956 - Sections 559; Companies (Court) Rules, 1959 - Rule 285
Appellantincome-tax Officer
RespondentMambad Timber and Estates (P.) Ltd. and ors.
Appellant Advocate P.A. Francis and; P.K. Ravindranath Menon, Advs.
Respondent Advocate Mani J. Meenattoor, Adv. for 2nd respondent and; T.V. Ramakrishnan, Adv. for 3rd respondent and;Regis
DispositionPetition dismissed
Excerpt:
.....companies (court) rules, 1959 - application by appellant seeking dissolution of respondent-company void - application has been made beyond period of limitation prescribed in section 559 (1) - court has no jurisdiction to pass order declaring dissolution void after expiry of prescribed two years of limitation period from date of order of dissolution of company - after amalgamation of defendant-company same had no undistributed assets or liabilities - no purpose would be served by declaring dissolution void - held, company petition dismissed. - - the company was dissolved by this court by an order dated february 13, 1970. in my view, the petition must fail on the short ground that the period of limitation fixed by the above section for the exercise of the power vested in the court..........application under section 294 of the english companies act, 1929, to declare the dissolution of a company void. that provision was very similar to section 352 in the english act of 1948, and also to section 559 of the companies act, 1956. in that case, the application was made within two years of the date of dissolution of the company ; and it was contended that no order can be passed after the expiry of two years from the date of dissolution of the company. the contention was rejected by the learned judge, and in doing so, he stated :' that undoubtedly is a plausible way of reading the section, but i think it leads to an incorrect result. 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.....
Judgment:
ORDER

Isaac, J.

1. This is an application by the Income-tax Officer, Central Circle, Ernakulam, under Section 559 of the Companies Act, 1956, for an order declaring the dissolution of the Mambad Timber and Estates (Private) Ltd. to have been void. The company was dissolved by this court by an order dated February 13, 1970. In my view, the petition must fail on the short ground that the period of limitation fixed by the above section for the exercise of the power vested in the court thereunder has expired.

2. The Mambad Timber and Estates (Private) Ltd. was a private company incorporated in 1955. A scheme for amalgamation of the company with the second respondent, the Ruby Rubber Works (Bangalore) Ltd. which is a public company, by transferring all its assets and liabilities to the latter company in consideration of shares in the said company being allotted to the members of the dissolved company, was sanctioned by this court under Section 394 of the Companies Act in Company Petition No. 5 of 1969. The scheme also provides for the dissolution of the company without being wound up. The accounts of the dissolved company were got audited by the official liquidator of this court, and after examining the auditor's report, the official liquidator made a report to this court that the affairs of the company Were not conducted in a manner prejudicial to the interest of its members or to public interest. On the basis of that report this court passed the order for dissolution of the company without being wound up. The petitioner now alleges that, in the course of assessment proceedings taken by him against the dissolved company for the years 1969-70 and 1970-71, he got information that the company had transacted large volume of clandestine business during the years 1964-65 to 1969-70 without bringing any of the transactions in its books of accounts, with the result the company escaped assessments during all the above years, and that the aforesaid amalgamation was effected with the object of defrauding the income-tax department. These allegations are stoutly denied by the second respondent. I do not think that it is necessary for me to go into the question whether the said allegations are true or not.

3. Section 559(1) of the Companies Act, 1956, reads;

' 559. (1) Where a company has been dissolved, whether in pursuance of this Part or 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 as 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.'

4. On a plain reading of the section, it is clear that the period of limitation prescribed therein is for making the order that the court is empowered to make under that section. But it has been vehemently contended by counsel for the petitioner that such a construction would be very harsh and would lead to very unreasonable consequences, in that any delay caused by the pendency of the application in the court would deprive the applicant of the remedy that he is entitled to get under the section, though he has come to the court within the period of two years mentioned therein. It is pointed out that the delay on the part of the court to pass orders on the application may sometimes be due to unavoidable reasons. It is argued that the section must be construed in a reasonable and practical manner, and that, if it is so construed the period prescribed under the section is not a period of limitation against the court to pass an order under that section, but it is a period of limitation against the applicant to file an application thereunder. On behalf of the second respondent it is submitted that there are sufficient reasons for fixing a period of limitation against the court's power to pass an order under the section, since dissolution of a company brings about a final effacement of its existence, and its resurrection by declaring the dissolution void would re-open things settled in the regular course to the prejudice of innocent third parties. It is also submitted that it is open to a person who seeks relief under Section 559 of the Act to move the court within sufficient time, so as to enable it to pass the order within the prescribed period.

5. In support of his contention counsel for the petitioner relied on the decision of Uthwatt J. in In re Scad Ltd., [1941] 2 All E.R. 466 ; [1942] 12 Comp. Cas. 30 (Ch. D.). That case related to an application under Section 294 of the English Companies Act, 1929, to declare the dissolution of a company void. That provision was very similar to Section 352 in the English Act of 1948, and also to Section 559 of the Companies Act, 1956. In that case, the application was made within two years of the date of dissolution of the company ; and it was contended that no order can be passed after the expiry of two years from the date of dissolution of the company. The contention was rejected by the learned judge, and in doing so, he stated :

' That undoubtedly is a plausible way of reading the section, but I think it leads to an incorrect result. 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 2 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.'

6. With great respect I am unable to agree. The language employed in Section 294 of the English Companies Act, 1929, and the Companies Act, 1956, is very clear, and the limitation prescribed therein is a limitation of time within which the court is empowered to pass an order. It cannot be said that such a provision would be an unreasonable one, and much less it would be absurd or something which Parliament never intended. The difficulty pointed out by his Lordship is a matter for legislative consideration. Provisions prescribing periods of limitation for passing orders setting aside orders already made, as against periods of limitation for entertaining an application are not uncommon in statutes. Sub-section (6) of Section 560 of the Companies Act, 1956, is an instance. It reads :

' If a company, or any member or creditor thereof, feels aggrieved by the company having been struck off the register, the Court, on an application made by the company, member or creditor before the expiry of twenty years from the publication in the Official Gazette of the notice aforesaid, may, if satisfied that the company was, at the time of the striking off, carrying on business or in operation or otherwise that it is just that the company be restored to the register, order the name of the company to be restored to the register; and the court may, by the order, give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.'

7. The period of limitation fixed in the above provision is clearly for the filing of the application. Section 560(6) deals with the power of the court to restore to register the name of a company which has been struck off the register, while Section 559(1), as already noticed, deals with the power of the court to declare dissolution of a company void. In Section 559(1), the period of limitation is fixed for passing the order on the application, while in Section 560(6), the limitation is provided for making the application. It is difficult to hold that Parliament did not intend this differentiation, when it employed different languages in the said two provisions. I, therefore, come to the conclusion that under Section 559 of the Companies Act, 1956, the court has no jurisdiction to pass an order after the expiry of two years from the date of the order of the dissolution of the company. Even on the view that the limitation prescribed under Section 559(1) is one against the entertaining of the application, I think that the application in this case is time-barred. Rule 285 of the Companies (Court) Rules, 1959, which relates to an application under Section 559 of the Act reads :

' 285. Application to declare dissolution void,--An application under Section 559 shall be made upon notice to the Central Government and the Registrar of Companies. Where the court declares the dissolution to have been void, the order shall direct that the applicant do file a certified copy of the order with the Registrar of Companies not later than 21 days from the date of the order.'

8. According to the above rule, the application has to be made upon notice to the Central Government and to the Registrar of Companies. The petitioner filed the present application on February 4, 1972, without giving notice to the Central Government and the Registrar. The application was returned to the petitioner for want of sufficient court-fees on February 11, 1972, and it was re-presented after curing the defect on February 18, 1972. Notice on the application was ordered on February 25, 1972, and the Central Government and the Registrar of Companies entered appearance on March 24, 1972. So the application can be considered to have been made with notice to the said two parties only on March 24, 1972, and at any rate not before February 25, 1972. The order of dissolution was made on February 13, 1970. In this view of the matter, the application has been made more than two years after the order of dissolution of the company, and it is, therefore, barred.

9. Before leaving this case, it is also relevant to point out one more aspect. The dissolution of the company was ordered after all its assets and liabilities were taken over by the second respondent. There is no case that the company has any undistributed assets. So there is no use to set aside the dissolution. To assess a company which is not possessed of any assets would be a labour of waste. Counsel for the petitioner contended that an order declaring dissolution of the company void automatically makes void the scheme of amalgamation and all transactions done by the company before dissolution. I find it difficult to accept this contention. There is neither authority nor logic in support of it. Palmer's Company Law, twenty-first edition, at page 780, says as follows with regard to the purpose of the provision for declaring a dissolution void :

' The purpose of this provision is to make possible the distribution of assets which belonged to the company before the dissolution and were, for some reason, overlooked ; accordingly, the court refused to make a declaration in favour of the company in order to secure the benefit of a legacy Which had never belonged to the company. '

10. Since as a result of amalgamation the company has ceased to have any assets and liabilities and as it is not the case of the petitioner that it has left any undistributed assets before dissolution, no purpose would also be served by declaring the dissolution void except that the income-tax department will have satisfaction of having taken reassessment proceedings against the company, whatever may be the result of that. I do not think that in any view of the matter the jurisdiction under Section 559 can be exercised by this court.

11. In the result this company-petition is dismissed. There will be no order as to costs.


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