RAJAMANNAR, Offg. C.J. - This is an appeal from the order and judgment of Clerk, J., in a petition filed by the Income-tax Officer, Special Circle, Coimbatore, to wind up the appellant company, viz., The Coimbatore Transport Ltd., a private company registered under the Indian companies Act. On an objection taken by the appellant, the Governor-General in council was substituted in the place of the Income-tax Officer as petitioner. The debts on which the petition was founded were due in respect of income-tax and excess profits tax for the years, 1941-42 and 1942-43. With a penalty of Rs. 3,200 the total amount due exceeded Rs. 30,000. There appears to have been a slight reduction in the amount payable on account of a subsequent decision of the Appellate Tribunal but it is not disputed that a very large sum if lawfully due and payable as and for the taxes above-mentioned.
The only ground on which the petitioner sought a winding-up order, at the trial, was that the company was unable to pay its debts [vide Section 162, clause (v), of the Indian Companies Act]. The learned Judge found that the company was unable to pay its debts and held that the petitioner was entitled to a compulsory winding-up order. He however directed the winding-up order to be stayed for a period of one week. If during that time security in the shape of Government paper for the amount of taxes due was deposited in Court, then the application was ordered to be dismissed with no order as to costs. If such security was not supplied within the time fixed, then the winding up order was to stand. No such security was furnished within the time allowed. The company appeals against this order.
It was contended by the learned advocate for the appellant that there was no sufficient allegation in the petition that the appellant was unable to pay its debts and that in any case there was no proof that it was so unable. We agree with the learned Judge that there is no substance in this objection. In the petition it was alleged that the company purported to have sold it buses on the 23rd March, 1946, for a sum of Rs. 1,71,000 but this money was not utilised for payment of the arrears of the taxes. It was also stated that such of the properties as may be traced may not fetch any appreciable sum. The company has been unable to pay the large amount due as taxes in spite of demands. In paragraph 12 of the petition mention is made of the unsatisfactory financial position of the company. The fact that the company is disputing the quantum of the tax assessed does not by itself prevent the Government from recovering the amount assessed and admittedly the company is not in a position to pay it. There can be no doubt that the petition did allege the inability of the company to pay its debts and the learned Judge was justified in finding that the allegation had been proved. In In re Gold Hill Mines, the only basis for the allegation that the company was unable to pay its debts was an ordinary statutory affidavit. In Doraiswamy v. Coimbatore E. S. Nidhi, there was a vague statement made in the petition but it was not supported by figures or facts and the only fact relied on was the failure to comply withe the statutory demand. These decisions cannot have any application to the present case.
It was next contended by Dr. John, learned advocate for the appellant, that there was a dispute as to the assessments and where there is a dispute and such dispute has not been finally determined, it is an abuse of the process of Court to resort to winding-up proceedings and this Court should not grant the prayer in such circumstances. It is said that as regards the assessment for the year 1941-42, the company intends to apply to this Court to direct the Income-tax authority to refer the case under Section 66 of the Income Tax Act and that as regards the assessment for the year 1942-43 there is an appeal pending before the Income-tax Tribunal. The learned advocate strongly relied on certain decisions in support of his contention, but on an examination of the facts of the cases in which those decisions were given, it becomes apparent that the principle laid down in them has no application whatever to the facts of the present case. In Satyarazu v. Guntur Mills, the appellant and two others applied for an order for winding-up the respondent company. The appellant claimed to be a mortgagee for a considerable sum, but the company did not admit that the mortgage was binding on it. A suit had been filed on the mortgage in which the validity of the mortgage was being contested. While the suit was pending, the application for winding-up was made. There was no proof that the company was insolvent. The learned Judges found that the petition was filed with the object of bringing pressure to bear upon the company in order to make it pay cheaply and expeditiously a heavy debt which it desired to dispute in the civil Courts. The learned Judges say :- 'The law is perfectly clear that petitions for winding up which are put in order to obtain an unfair advantage over other creditors at a time when the company is not known to be insolvent amount to an abuse of the process of the Court and should be dismissed.' They point out that there was no reason why the appellant, if the amount was due, should not get her remedy in the usual course by obtaining a decree in the suit instituted by her. It was a case where the creditor, without resorting to the ordinary remedy of enforcing her claim in a Court of law, was attempting to use the winding-up provision to coerce the company to pay up disputed debt. In In re London and Paris Banking Corporation a creditor of a company whose debt was disputed served a statutory notice and at the expiration of three weeks thereafter filed a petition to wind-up the company. In the opinion of the Court, the circumstances showed that the object of the petition was not to obtain a winding-up order but to put pressure other company. There was no evidence of the insolvency of the company other than the noncompliance with the notice. The petition was dismissed. The following passage from the judgment of Jessel, M. R., is informing :- '... if the debt is bona fide contested, and there is no evidence other than non-compliance with the statutory notice to show that the company is insolvent, and the company denies its insolvency (as this company does) I ought to dismiss the petition. I must say, however, that the facts of the case go far beyond what I have stated, and are such as to convince me that this petition has not been presented bona fide, that is, not with the view of obtaining a winding-up order but with the object of extorting from the company a larger sum than they thought was fairly due under pressure of a threat to present the winding-up petition.' To the same effect are the observations of Vaughan Williams, J., in In re A company :- 'In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purpose of obtaining a winding-up order, but for other purposes, such as putting pressure on the company, I ought to stop it if its continuance is likely to cause damage to the company.'
In Tulsidas Lallubhai v. Bharat Khand Cotton Mill Company Ltd., the petitioner, who was an assignee of certain debts due by the defendant company to its late secretary and manager, demanded payment from the company; but the company refused to pay on the ground that it believed the claim was fraudulent and unsubstainable. The petitioner thereupon applied to the Court to compulsorily wind up the affairs of the company. It was not shown that the company was unable to pay its debts in full. The application was rejected because it was found that the petitioners object was to bring the pressure of insolvency proceedings to bear upon the company in order to make it pay cheaply and expeditiously a heavy debt which it desired to dispute in the civil courts. In the present case the facts are entirely different. According to the law, and this is not disputed by Dr. John, the Income-tax authorities are entitled to recover the amount assessed by them though an appeal or reference is pending in respect of the assessment and the amount could be recovered by coercive process. This is not therefore a case where the petitioner had to establish his claim in a Court of law before he could proceed to recover the amount due. This is also not a case in which the only ground in insolvency alleged is non-compliance with the statutory notice under Section 163 (1) of the Act. We have found that it has been established that the company is unable to pay its debts. It is impossible to characterise the action of the petitioner in filing an application for winding up as an abuse of the process of Court.
Finally Dr. John suggested that in view of the proceedings pending or which he proposes to take in respect of the assessments the petition ought to have been adjourned till a final determination of the validity of assessments. He relied strongly on Bowes v. Hope Life Insurance and Guarantee Company in which the petition for winding up was ordered to stand over on the company undertaking to file a bill to impeach the judgment on which the petition was based. The facts of the case however reveal that this procedure was adopted because of certain special circumstances which are absent in the present case. Their Lordships were prima facie not satisfied with the genuineness or validity of the debt on which the petition for winding up was based. Lord Cranworth said :- 'But here I must confess I cannot say that this debt is so clearly made out to my mind as being a valid debt at law and equity that I think the Court was bound to direct the winding-up, if there was any mode by which the validity of the debt could be better established before that order was made.' Lord Kingsdown said as follows :- 'Everybody must feel (as it is here stated) that this is a case in which there is the gravest possible doubt as to the genuineness and fairness of this transactions. It is clear that it must be investigated, and thoroughly investigated.'
In In re Amalgamated Properties of Rhodesia (1913) Limited, the facts were as follows :- An action by company A against company G was dismissed with costs, and the costs payable by company A were taxed at a sum of over pounds 65,000. Company G served the company A with a statutory demand for payment of the amount and on non-compliance with the demand filed a petition for winding-up of company A. In the meantime company A lodged an appeal from the decision at the trial. Sargant, J., held that the appeal was not a defence to the petition but that a winding-up order must be made which must lie in the office for a limited time, and that, if within that time company A gave security to the Registrars satisfaction for the amount of the judgment debt, the petition must be dismissed. It may be seen that this order is similar to the order made by Clerk, J. There was an appeal from the judgment of Sergeant, J., but the appeal was not heard as by consent an arrangement suggested by the Court was agreed to by the parties, viz., company A was given the alternative of giving to the company G within a limited period a security on its assets. Dr. John suggested that the latter procedure might be adopted and that the company may be permitted to give security on its assets. This suggestion was not accepted by the respondent because according to him the assets were nil and the appellants counsel was not in a position to deny this fact. We indicated that if the company was willing to furnish security to the satisfaction of the Court for the amount of the taxes due we might be disposed even now to postpone the operation of the winding-up order till the validity of the assessments was finally determined. But Dr. John intimated to us that the company found it impossible to furnish any such security. We do not find any ground on which we could postpone the winding-up proceedings.
We agree with the learned judge in the order which he made and the appeal is dismissed with costs. Dr. John expressed that the company apprehended that the proceedings being taken by the company to challenge the validity of its assessment might not be conducted properly unless they were done with the assistance of the companys officers. The respondents advocate fairly conceded that he could have no objection to the official liquidator permitting the companys officers to assist him in the prosecution of the proceedings which might be taken in respect of the assessments.