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Official Liquidator, Swaraj Motors (P) Ltd. (In Liquidation) Vs. Income-tax Officer, Company Circle. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberApplication Nos. 138 and 148 of 1971 in Company Petition No. 14 of 1969
Reported in[1972]84ITR363(Ker)
AppellantOfficial Liquidator, Swaraj Motors (P) Ltd. (In Liquidation)
Respondentincome-tax Officer, Company Circle.
Cases ReferredOfficial Liquidator v. Commissioner of Income
Excerpt:
.....of contempt and the court delayed posting of case for more than four years for no fault of the petitioner, the maxim actus curiae neminem gravabit applies. petition is not barred by limitation. - clearly it is not proceeding in an ordinary court of law. there is an observation in that decision that the income-tax officer is bound to obtain the leave of the company court under section 446 of the companies act for commencing proceedings for the purpose of quantification and collection of the tax, and that any failure to do so would throw and light on the matter......act, 1956, read with section 460(4) thereof for necessary directions in respect of certain legal proceedings which have been initiated by the respondent, the income-tax officer, companies circle, ernakulam, against the applicant.the respondent has issued to the applicant the following notices under the income-tax act, 1961 :'1. notice under section 156 demanding payment of rs. 57,070 being the income-tax assessed against the company for the year 1970-71;2. notices under section 274 read with section 271 relating to the assessment years 1963-64 to the 1970-71 requiring the applicant to show cause why an order imposing penalty under section 271 should not be made;3. notices under section 274 read with section 273 relating to the assessment years 1963-64 to 1968-69 requiring the.....
Judgment:

ISAAC J. - These applications have been made by the official liquidator of the Swaraj Motors (P.) Ltd. (in liquidation) under section 446 of the Companies Act, 1956, read with section 460(4) thereof for necessary directions in respect of certain legal proceedings which have been initiated by the respondent, the Income-tax Officer, Companies Circle, Ernakulam, against the applicant.

The respondent has issued to the applicant the following notices under the Income-tax Act, 1961 :

'1. Notice under section 156 demanding payment of Rs. 57,070 being the income-tax assessed against the company for the year 1970-71;

2. Notices under section 274 read with section 271 relating to the assessment years 1963-64 to the 1970-71 requiring the applicant to show cause why an order imposing penalty under section 271 should not be made;

3. Notices under section 274 read with section 273 relating to the assessment years 1963-64 to 1968-69 requiring the applicant to show cause why an order imposing penalty under section 273 should not be made; and

4. Notice under section 148 to reassess the income said to have escaped assessment for the year 1962-63.'

In Application No. 138, the applicant submits that there is conflict of judicial opinion on the question whether section 446(1) of the Companies Act, 1956, would apply to proceedings of the kind which the respondent has initiated by the above notices. He has referred to the various decisions on this question, and has sought the direction of this court in respect of the action taken against him. He prays that the proceedings initiated by notices mentioned as items (1) to (3) above may be declared to be void and set aside, in case it is found that section 446(1) of the Companies Act would apply to such proceedings. In Application No. 148, the applicant prays for staying the proceedings initiated by the notice mentioned as items (4) above, for the reasons stated in Application No. 138.

Both these applications are opposed by the respondent. His counsel contends that the proceedings initiated by the aforesaid notices are entirely within the jurisdiction of the Income-tax Officer, that the company court has no jurisdiction to deal with any of the matters arising in the said proceedings and that section 446(1) of the Companies Act has no application to such matters.

This question has been considered in a number of decisions; and it is not, therefore, necessary for the me to cover the same grounds which have been somewhat elaborately discussed in those decisions. I shall only refer briefly to the decisions cited at the Bar in chronological order in the light of the opposing views canvassed for by counsel for the applicant and the respondent. Before doing so, it is necessary to read section 446 of the Companies Act :

'446. (1) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, against the company, except by the leave of the court and subject to such terms as the court may impose.

(2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of -

(a) any suit or proceeding by or against the company;

(b) any claim made by or against the company (including claims by or against any of its branches in India);

(c) any application made under section 391 by or in respect of the company;

(d) any question of the priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding-up of the company; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or made before or after the order for the winding-up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960.

(3) Any suit or proceeding by or against the company which is pending in any court other than that in which the winding-up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court.

(4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceedings pending in appeal before the Supreme Court or a High Court.'

The controversy is regarding the true meaning of the expression 'other legal proceeding' occurring in section 446(1) in the context it is used therein. It is not disputed that the term 'legal proceeding' would embrace any proceedings taken under any law; but counsel for the respondent submits that, in the context it occurs in the above section, 'legal proceeding' means a proceeding which, under law, a court has jurisdiction to entertain and dispose of.

The first decision to be considered is that of the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. (In liquidation), In that case the question was whether an Income-tax officer was entitled to take proceedings against an official liquidator under section 46(2) of the Indian income-tax Act, 1922, to recover arrears of income-tax due from the company in liquidation as an arrear of land revenue, without the leave of the winding-up court under section 171 of the Indian Companies Act, 1913. This section corresponds to section 446 of the Companies Act, 1956. It was contended that for a proceeding to be within the scope of section 171 of the Indian Companies Act, 1913, it must be in the nature of a suit, and that it must also be proceeding in court. The contention was rejected by the Federal Court, It stated :

'Moreover, the scheme of the application of the companys property in the pari passu satisfaction of its liabilities, envisaged in section 211 and other sections of the Act, cannot be made to work in co-ordination, unless all creditors (except such secured creditors as are outside the winding up in the sense indicated by Lord Wrenbury in his speech in Food Controller v. Cork) are subjected as to their action against the property of the company to the control of the court. Accordingly, in our judgment, no narrow construction should be placed upon the words or other legal proceeding in section 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company.

That still leaves open the question whether action under section 46 of the Indian income-tax Act is covered by the phrase other legal proceeding. Clearly it is not proceeding in an ordinary court of law. But we see no reason why in British India no legal proceeding can be taken otherwise than in an ordinary court of law, or why a proceeding taken elsewhere than in an ordinary court of law, provided it be taken in a manner proscribed by law and in pursuance of law or legal enactment, cannot properly be described as a legal proceeding ?'

The next decision cited before me is that of learned single judge of this court in B. V. John v. Coir Yarn & Textile Ltd. One of the questions that arose for consideration in the above case was whether an adjudication on a reference made under section 10 of the Industrial Disputes Act, 1947, was a legal proceeding falling within the ambit of section 446 of the Companies Act, 1956. The learned judge held that only a proceeding in the nature of an action against the property of the company would come within the scope of the above section. He further observed that a suit or proceeding for which leave in necessary under section 446(1) must be a suit or proceeding capable of being withdrawn and disposed of by the winding-up court. It was accordingly held that leave of the winding-up court was not necessary for continuance of the adjudication proceeding.

Another decision brought to my notice is a single Bench decision of the Punjab High Court in Union of India v. Seth Spinning Mills Ltd. which held that a penalty imposed by the income-tax Officer against a company in liquidation without obtaining the leave of the winding-up court under section 171 of the Indian Companies Act, 1913, was void. It stated that the language of this section was wide enough to include proceedings under the income-tax Act. There is no discussion of the question in this decision.

The next decision is that the of a single Bench of the Allahabad High Court in Tika Ram & sons (P) Ltd. v. Commissioner of Income-tax. It held that section 446 of the Companies Act does not apply to income-tax proceedings prior to the stage of assessment. The question whether the section would apply to a proceeding for recovery of the tax was left open, as it did not arise for decision in that case. The learned judge dissented from the view expressed in the above Punjab case, and sought support from the decision of the Kerala High Court above referred to.

Now, I come to the decision of the Supreme Court in Dimji Valji Shah v. Life insurance Corporation of India. It was contended in that case that the Life Insurance Tribunal constituted under the Life Insurance Corporation Act had no jurisdiction to proceed with a proceeding under section 15 of that Act against a company in liquidation without the leave of the company court under section 446 of the Companies Act, 1956. Section 41 of the Life Insurance Corporation Act provides that no civil court shall have jurisdiction to entertain or adjudicate upon any mater which a Tribunal is entitled to decide or determine under that Act. The Supreme Court held that, in view of this provision, the Tribunal had exclusive jurisdiction to decide matters arising in proceeding under section 15 of the Life Insurance Corporation Act, and that section 446 of the Companies Act would not, therefore, operate on such a proceeding. The court also added that the provisions of the Life Insurance Corporation Act, which is special Act, would override the provisions of the Companies Act, which is a general Act Relating to companies in general.

The next decision to which reference was made is one of the Mysore High Court in Mysore Spun Silk Mills Ltd. (In liquidation), In re This is a Single Bench decision. There is an observation in that decision that the Income-tax Officer is bound to obtain the leave of the company court under section 446 of the Companies Act for commencing proceedings for the purpose of quantification and collection of the tax, and that any failure to do so would throw and light on the matter.

Next I come to two decisions of the Bombay High Court. The first one is by Single Bench in Colaba Land and Mill Co. Ltd., In re. The next one is a Division Bench decision in an appeal from the first decision; and it is Colaba Land and Mills Co. Ltd. In re. The learned single judge dissented from the decision of the Allahabad High Court in Tika Rams case, distinguished the decision of the Supreme Court in Damji Valji Shahs case and held that the income-tax authorities are not entitled, in view of the provisions in section 446(1) of the Companies Act, to commence or continue assessment or reassessment proceedings against a company which is ordered to be wound up without the leave of the court. This decision was set aside by the Division bench which held that the decision for the Supreme court in Damji Valji shahs case applied to proceedings under the Income-tax Act and that such proceedings were not affected by section 446(1) of the Companies Act.

The last decision cited before me is Single Bench decisions of the Calcutta High in Official Liquidator v. Commissioner of Income-tax. There is an elaborate and useful discussion of the whole case law in this decision; and the learned judge held that an assessment proceeding under the Income-tax Act would not come within the scope of section 446(1) of the Companies Act.

It is firmly established on the authority of the decision of the Supreme Court in Damji Valji Shahs case that section 446(1) of the Companies Act would not apply to all legal proceedings. Therefore, leave of the court to institute or continue a legal proceeding against a company which has been ordered to be wound up would be necessary only in respect of proceedings which would fall within the ambit of the above section. Some of the decisions referred to above have attempted to lay down different principles in determining whether a particular legal proceeding would fall under the said section. I think it is safer to confine to the principle laid down by the Supreme Court in this respect, namely, that section 446(1) of the Companies Act would apply only to a legal proceeding in respect of a matter which the company court has got jurisdiction to entertain and dispose of. Those matters are enumerated in sub-section (2) of the section 446. The object of sub-section (1) is to prohibit the institution or continuance of any suit or legal proceeding in respect of such a matter in any other from without the leave of the winding-up court. If such a prohibition is not enacted in the light of the jurisdiction conferred on the winding-up court by sub-section (2) of section 446, there would be conflict of proceedings and conflict of decision. Sub-section (1) is intended to avoid such a situation; and it confers the ultimate control in the matter on the winding-up court which is entrusted with the function of collecting and distributing the assets of the company according to law.

Applying the above principle, it follows that an assessment or reassessment proceeding or a proceeding to impose penalties under the Income-tax Act does not fall within the ambit of sub-section (1) of section 446 of the Companies Act, 1956, as such a proceeding does not come under sub-section, while sub-section (1) would apply to a claim for arrears of income-tax or any other amount by way of penalty or otherwise, as such a claim falls under sub-section (2). These applications are, therefore, dismissed. In the circumstances of the case, I make no order as to costs.


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