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Mohammed AmIn Bros. Ltd. Vs. Dominion of India and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata
Decided On
Case Number A.F.O.O. No. 83 of 1949
Judge
Reported inAIR1952Cal323,54CWN514
ActsCompanies Act, 1913 - Sections 2, 3, 162, 163, 169, 170 and 174; ;Government of India Act, 1935 - Section 226
AppellantMohammed AmIn Bros. Ltd.
RespondentDominion of India and ors.
Appellant AdvocateP.R. Das and ;R. Chaudhuri, Advs.
Respondent Advocate S.C. Mitter and ;S. Banerjee, ;H.K. Bose, ;A.K. Sen, ;Atul Gupta and ;R.S. Bachawat, Advs.
Cases ReferredTulsidas Lallubhai v. Bharat Khand Cotton Mills Co.
Excerpt:
- harries, c.j.1. this is an appeal from a judgment & order of sinha, j., winding up the appellant co. the appellants are a limited company with a nominal capital of rs. 15,00,000/- divided into 1,500 shares of rs. 1,000/- each. the amount of capital paid up or credited as paid up is rs. 15,00,000. the company carries on the business of exporters & importers of hides & skins & other commodities. on 30-3-1948 the company was assessed to income-tax & corporation tax for the assessment years 1944-45 1945-46, & 1946-1947 in the amount of rs. 4,56,562-5-0. on the same date the company was also assessed for the periods ending 31-10-1943, 31-10-1944, & 31-10-1945 at rs. 30,44, 234/- on account of excess profits tax & compulsory deposits. the total amount of tax for which the co. was assessed was.....
Judgment:

Harries, C.J.

1. This is an appeal from a Judgment & order of Sinha, J., winding up the appellant co. The appellants are a limited Company with a nominal capital of Rs. 15,00,000/- divided into 1,500 shares of Rs. 1,000/- each. The amount of capital paid up or credited as paid up is Rs. 15,00,000. The Company carries on the business of Exporters & Importers of hides & skins & other commodities. On 30-3-1948 the Company was assessed to income-tax & corporation tax for the assessment years 1944-45 1945-46, & 1946-1947 in the amount of Rs. 4,56,562-5-0. On the same date the Company was also assessed for the periods ending 31-10-1943, 31-10-1944, & 31-10-1945 at Rs. 30,44, 234/- on account of excess profits tax & compulsory deposits. The total amount of tax for which the co. was assessed was therefore Rs. 35,00,796-5-0. The income-tax assessments for the years 1947-48 & 1948-49 have not been completed & are still pending. On 9-4-1948 notices of demand of the amounts due were served on the Company & some of the assets of the Company were attached in execution & that attachment is still subsisting. On 26-1-1949, the directors of the Company made & filed a declaration of solvency under Section 207, Companies Act The Company passed a resolution for a voluntary winding up & Mr. B. C. Bhattacharjee, a Pleader, who acted for the Company was appointed Liquidator. The declaration of solvency made by Gulam Mohiuddin & Abdul Rezak, two directors of the Company, showed that the Company owed in respect of income-tax, excess profits tax, etc., a sum of Rs. 3,50,000/- though long before that date the Company had been assessed to the sum of Rs. 35,00,796-5-0. On 7-2-1949 an application was made on behalf of the revenue authorities to wind up this Company, & directions were given for advertisements. On the same date an application was made for the appointment of a provisional liquidator & Mr. G. Basu, an Incorporated Accountant, was appointed provisional liquidator pending the hearing of the application. Later M. G. Basu & Mr. B. C. Bhattacharjee, the liquidator appointed in the voluntary winding up, were appointed provisional liquidators pending the hearing of the winding up application.

2. The Company opposed the application on a number of grounds. In the first place it was said that the assessments to income-tax, super-tax, etc., were illegal & arbitrary. In the affidavit tiled on behalf of the co. it was said that the Income-tax Officer originally made an assessment of Rs. 1,50,000/- but the Commissioner of Income-tax being dissatisfied with this assessment arbitrarily raised the assessment from Rs. 1,50,000/- to over Rs. 35,00,000/-. It is to be observed that there is no evidence of this alleged arbitrary action of the Commissioner of Income-tax beyond the statement in this affidavit. It was said, in objection to be petition for winding up, that appeals had been preferred from the various assessments which went to make up the sum of over Rs. 35,00,000/- & that these appeals were pending & had not been disposed of. It appears that one appeal had been disposed of by the Assistant Appellate Commissioner when Sinha, J., heard this application, but this appeal was unsuccessful & an appeal had been filed against this order before the Income-tax : apellate Tribunal. It was also urged that the Court should not make a winding up order at the instance of the revenue authorities as steps had been already taken by the authorities under the Public Demands Recovery Act to recover the sums due. It appears that the Company had applied under Section 45, Income-tax Act, which gives discretion to the Income-tax Officer not to treat the assessee as a defaulter as long as an appeal or appeals against the assessment order or orders were pending. This application, however, was summarily rejected & steps were taken to realise the tax. The Company contended that the application to wind up the Company was not bona fide & that the revenue authorities were taking every step they could to stifle the appeals preferred, by the company. It was also contended that there was no reason why the voluntary winding up should be superseded by an order for compulsory winding up. All the creditors except the revenue authorities had supported the action of the Company in going into voluntary liquidation & it was urged that the wishes of the other creditors should be respected & that the voluntary liquidation should be allowed to continue. The Company denied the allegations of the taxing authorities that the statements made in the declaration of solvency were not true & the Company contended that the amount shown in that declaration as due in respect of income-tax etc. was a correct figure & that the amount claimed by the, authorities was grossly excessive. Lastly it was urged before the learned Judge that no order for winding up should be made until it was known what amount was due from the Company in respect of income-tax. The learned Judge was asked to adjourn the application for winding up for a reasonable time & to consider the matter again when the result of these appeals was known. It is to be observed that one appeal which was filed before the Income-tax Appellate Tribunal has succeeded & the amount of tax due from the Company has been reduced very materially. According to the revenue authorities this appeal has resulted in a reduction of slightly over Rs. 7,00,000/- whereas the appellants contend that the total assessment has been reduced by Rs. 8,00,000/-. In any event it is clear that with respect to this assessment the income-tax authorities were grievously at fault & had grossly over-assessed the assessees. Before us it was contended in the first place that the application to wind up this Company made by the Income-tax authorities was not a 'bona fide' one & therefore the Court should not accede to it. It is clear that before the Income-tax authorities made this application to wind up the Company they had taken steps to realise their dues, as they were entitled to do, through the machinery of the Public Demands Recovery Act. As I have said previously, the application to wind up was made on 7-2-1949 & a provisional liquidator was also appointed as a result of another application made on that date. Nevertheless it is clear that the income-tax authorities proceeded thereafter to realize the amount assessed by other means. For example, on 23-3-1949 the Income-tax Officer addressed a notice to the Collector of Customs requiring him under Section 46 (5) (a), Income-tax Act to pay any amount due from or held by him for & on account of the appellants to the taxing authorities & also requiring him to pay any money which might subsequently become due from him to the Company to the authorities. In this notice it was categorically stated that if the Collector discharged any liability to the Company after receipt of the notice he would be personally liable to the extent of the liabilities discharged. Similar notices were issued to Moulvi Mohammad Amin & to the Ocean Fabrics Traders Limited & also to G. Mohiuddin & the Asiatic Engineering Company Limited.

3. On 21-3-1949 a sale was held by the Certificate Officer of certain lands & buildings situate at 37 Tangra Road which belonged to the co. This sale was in execution of certificates obtained by the Taxing authorities, but the bids made were thought to be insufficient & the sale was adjourned to 28-3-1949. On 28-3-1949 no bidders were present & the sale was again adjourned until 4-4-1949. It is therefore clear that after making this -application to wind up the co. the taxing authorities proceeded to realise or attempted to realise the amounts due without reference to a possible winding up of the Company. This it is said, shows that the taxing authorities are endeavoring by every possible means to harass the appellants & to make it impossible for them to prosecute their appeals & obtain a reduction of the grossly exaggerated assessments made on them. The appellants also relied on another incident which they suggest shows that the income-tax authorities are not acting 'bona fide' in this matter. On 8-2-1949, that is a day after the Income-tax authorities had presented the petition for winding up an application was made to the Presidency Magistrate for a search warrant against the Company their directors, officers & liquidators. It was alleged in this application which was made by the police that the Company, their directors, officers & liquidator were suspected of being in possession of a large number of forged currency notes & the means of forging such notes. The police therefore asked for a search warrant to enable them to search the premises of the Company & their various officers with a view to recovering these forged notes & information concerning them. A search warrant was issued & it appears that the police executed the warrant but found nothing incriminating. They however appear to have collected every document which was in possession of the Company & their various officers including those belonging to other Companies connected with the appellants. These documents were collected & deposited in one room. On 16-3-1949 five Income-tax Officers were permitted by the police to examine all the documents which had been collected & which had been deposited, as I have said, in a room on the premises. This appears to have been done as a result of a notice dated 12-3-1949 served upon the D. C. of Police, Detective Department, Lal Bazar, under Section 37, Income-tax Act. On 19-3-1949 the matter was reported to the Chief Presidency Magistrate & by an order which he made on that day it is clear that he thought that this order had been abused & he directed that the books & papers not required by the police should be returned. They were however not returned but examined thoroughly by the Income-tax authorities. It is suggested on behalf of the appellants that the application made for a search warrant must have been made at the instance of the income-tax authorities. As I have said, the application was made on the ground that it was suspected that the Company & their various officers & liquidator held quantities of forged notes & moulds for manufacturing such notes. The search warrant was asked for with a view to recovering these articles & with a view to collecting information relating to a gang operating in these forged notes. Nothing incriminating was found & no proceedings of any sort appear to have been instituted by the police against the co. or any of their officers. The only result of the granting of a search warrant was that all the documents in the possession of the Company & their officers were collected & placed in one room & were later examined by five Income-tax Officers. It might be suggested that a notice under Section 37, Income-tax Act, was served on the Deputy Commissioner of Police when the Income-tax authorities heard of this search. But the fact that this notice was served after all the papers had been collected together by the police does raise in my mind a very grave suspicion that the Income-tax authorities were behind this application for a search warrant. It is difficult to believe that the application for a search warrant & the notice under Section 37 served later on the police are wholly unconnected. Another incident is relied upon by the appellants to show the want of 'bona fides' on the part of the taxing authorities. The declaration of solvency made by the directors under Section 207, Companies Act was supported by a statement of affairs of the Company on 25-1-1949 signed by Mr. N. C. Chowdhury, an Incorporated Accountant, carrying on his profession at No. 26-C Creek Row, Calcutta. Mr. Chowdhury later signed a letter addressed to the Eegistrar of Joint Stock Companies, dated 29-1-1949 & the suggestion is that this letter was obtained from Mr. Chowdhury to support the application for winding up which was filed on 7-2-1949. It is said in the affidavit of Gulam Mohiuddin which was filed in this Court on 24-3-1949 that Mr. Chowdhury on Saturday morning, 29-1-1949 appeared before the Income-tax Officer pursuant to a notice served on him under Section 37, Income-tax Act. It is said that he was immediately taken to the Commissioner's room where he was examined by the Commissioner, Mr. Nargolwalla, & Mr. Chowdhury wrote at the direction of the said Commissioner a letter addressed to the Registrar of the Joint Stock Companies to the effect that if it had been disclosed to him that there was a claim for Rs. 35,00,000/- & over in respect of income-tax he would not have given the certificate of solvency because in that event the Company was insolvent. He stated in that letter that the fact that this very large claim had been made against the Company had not been disclosed to him. In the affidavit it is suggested that the Income-tax Officer, at the instance of the Commissioner, telephoned to the Registrar of Joint Stock Companies & asked him to wait in his office as there was an urgent matter which required his attention concerning Messrs. Mohammad Amin Brothers Limited. Later the Income-tax Officer together with Mr. Chowdhury went to the office of the Registrar of Joint Stock Companies & made over this letter. The letter was typed in the office of the Income-tax authorities on paper provided by the authorities & the account given of the method of obtaining this letter from Mr. Chowdhury does not reflect any great credit on the Taxing authorities.

4. Mr. P. R. Das on behalf of the appellants strongly urged us to discard this letter altogether as it had obviously been obtained as the result of duress & I am inclined to think that it was. Mr. Atul Gupta who appeared on behalf of the authorities realised, I think, the weakness of his position with regard to this letter & he did not urge us to accept it as evidence that the original declaration of solvency was false. Mr. Chowdhury had been sent for by the taxing authorities & after being with them for some time this letter was actually typed in the Income-tax Office. It is very difficult to resist the inference that pressure must have been brought on Mr. Chowdhury & that the letter was signed by him as a result of such pressure. There can be no doubt that the taxing authorities in this case have taken every possible step to realise the amount assessed with all spsed. They had dismissed summarily the application of the appellants to be treated not as a defaulter & made every endeavour to realise what they could by certificate proceedings. Further, whilst these proceedings were going on they filed this application praying that the Company be wound up.

5. Before Sinha J. it was boldly argued that the fact that the income-tax authorities had proceeded with their certificate proceedings after the provisional liquidators had been appointed amounted to a contempt of Court but Sinha J. appears to have been satisfied that the true legal position was not realized by the Income-tax Officer & he accepted an undertaking given on behalf of the Income-tax authorities by the Advocate General that no further proceedings would be taken & that they would rely upon their rights in the winding up of the Co. Mr. P. R. Das has strongly urged before us that the intention of the income-tax authorities was to make it impossible for the Company to fight the appeals. According to the aperients Mr. Batta-charjee who had open appointed the provisional liquidator was their pleader & was in charge of these income-tax appeals. It was suggested t at the aim of the taxing authorities was to get rid of Mr. Bhattacharjee & make it difficult, if not impossible, for him to have access to the books of the Co. in the hands of the liquidator appointsd of the Court. Mr. P. R. Das urged that the conduct of the taxing authorities in inuucing the police to obtain a search warrant & in dealing with Mr. Chowdhury, the Accountant, showed that they were wholly unscrupulous & would descend to any means to make it impossible for the Company to fight the appeals. As I have said, the conduct of the taxing authorities is not above suspicion & though I strongly suspect that they had a hand in obtaining the search warrant, it is impossible to accept it as proved that they were behind the police. Their conduct with regard to Mr. Chowdhury is reprehensible, but even so I find it impossible to hold that the taxing authorities were not bona fide in making this application to wind up the company. They had certainly proceeded to realise their dues independently of the winding up, but realised their error & through the Advocate General undertook to take no further steps on their own accord. It appears to me that strictly the taxing authorities were entitled to press for this sum of over Rs. 35,00,000/- though the amount was hotly disputed &, as I have said, as the result of one appeal, has been substantially reduced. I am therefore unable to hold that the application was mala fide & was not made with a view to realising the amount due from the company to the revenue authorities. It was then argued by Mr. P. R. Das that this Court had no jurisdiction to entertain an application for winding up the company by reason of Section 226, Govt. of India Act. That section is in these terms:

'(1) Until otherwise provided by Act of the appropriate Legislature, no High Court shall have any original jurisdiction in any matter concerning the revenue, or concerning any act ordered or done in the collection thereof according to the usage & practice of the country or the law for the time being in force........'

The application made to this Court was an application invoking the original jurisdiction of the Court & it was urged by Mr. P. R. Das that this Court was asked to exercise its original jurisdiction in a matter concerning the revenue & that being so, that Court had no jurisdiction to entertain the application. Mr. Atul Gupta on behalf of the respondents however urged that an application to wind up a company did not fall within the provisions of Section 226(1), Govt. of India Act. His contention was that what this section provided was that no High Court should have any original jurisdiction in any dispute relating to the assessment of the revenue or over any act ordered or done in the collection of such revenue. He urged that by making an application to wind up the company me Court was not asked to adjudicate upon any dispute concerning the assessment of such tax or concerning the amount of such tax due from the company. Neither was the Court asked to adjudicate upon any act ordered to be done or actually done in the collection of such revenue. Therefore he contended that the section had no application to the winding up of a company. Mr. P. R. Das urged that proceedings to wind up a company were in the nature of execution proceedings, that is, proceedings to realise a debt from an insolvent company. They were proceedings intimately connected with the collection & recovery of the amount of revenue due & therefore they must be regarded as proceedings concerning the revenue & were therefore barred by Section 226(1), Govt. of India Act. There can be no doubt that Courts in England have regarded proceedings for winding up a company as being of the nature of proceedings in execution.

6. In in re. Crigglestone Coal Company Ltd.' (1906) 2 Ch. 327, Buckley J. dealing with the right to apply for winding up observed at p. 331 as follows:

'This right of the unpaid creditor may be called, as Lord Bowen called it in 'In re. Chapel House Colliery Co.' (1883) 24 Ch. D. 259, a right to equitable execution. A creditor who obtains judgment, & issues execution at law, has a legal right to the means of satisfynig his judgment. Subject to qualifications, one of which rests in the fact that the language of the Act is 'may' & not 'shall', & to the reservation which Lord Cranworth made, & subject-to what I shall presently say as to the representative position of the petitioner, it seems to me that the petitioning creditor has, as between himself & his debtor, a similar right ex debito justitiae to seize his debtor's assets by the hand of a liquidator & administer them for the benefit of his class.'

Palmer in his Company Precedents, Part II, Edn. 15 at p. 36 sums the matter up as follows:

'A winding up petition is perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the Court gives to a creditor against a Company unable to pay its debts.'

Even if the winding up of a Company may be regarded as being in the nature of execution proceedings, nevertheless I find it impossible to hold that -the jurisdiction of this Court is barred by reason of Section 226, Govt. of India Act. It is to be observed that the Companies Act has provisions applicable to claims in the nature of revenue. Section 230 of the Act provides:

'(1) In a winding up there shall be paid in. priority to all other debts:(a) all revenue, taxes, cesses & rates, whether payable to the Crown or to a local authority due from the Co. at the date hereinafter mentioned & having become due & payable within the twelve months next before that date.'

The High Courts were given jurisdiction by Sections 2 & 3, Companies Act in winding up & it is difficult to understand how Section 230 was inserted in the Act if High Courts had no jurisdiction to entertain petitions for winding up presented by Govt. in respect of taxes or to make orders in respect of such claims during the winding up. Quite clearly this section contemplates that Govt. may recover revenue or taxes in the winding up of a Company & if the appellants' argument is sound it could only do so if the winding up was being conducted by some Court other than the High Court through the Act contemplates that the High Court has jurisdiction & is the principal Court for the purposes of winding up. Section 232, Companies Act, also has in contemplation the possibility of the Crown being a party in liquidation proceedings. That section provides that during a winding up, any attachment, distress or execution put in force without leave of the Court against the estate or effects or any sale held without leave of the Court' of any of the properties of the Company after the commencement of the winding up shall be void. : Sub-Section (2) however provides that nothing in this section applies to proceedings by the Crown. The presence of Sub-Section (2) suggests that if the express exceptions had not been made the Crown would be bound by the provisions of Sub-Section (1). Section 171, Companies, Act provides:

'When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with, or commenced against the Co. except by leave of the Court, & subject to such terms as the Court may impose.'

7. This section makes no reference to a suit or other proceeding instituted by the Crown, but it was held by the P. C. in 'Governor General in Council v. Shiromani Sugar Mills Ltd.' (1946) P. C. R. 40, that this section did apply to suits or other proceedings instituted by the Crown. In that case a co. was ordered to be wound up by the Allahabad High Court in April 1942 & an order of assessment to income-tax of the profits made by the Company in the year ending 31-5-1940 was made in February 1943 & the Income-tax Officer without obtaining the leave of the Court under Section 171, Companies Act, commenced proceedings under Section 46(2), Income-tax Act, for recovery of the tax as if it were an arrear of land revenue, overruling the objection of the Official Liquidators that the proper procedure to be followed by the Income-tax Officer was to lodge a claim in the winding up proceedings. The Federal Court held that in the winding up of a Company under the Companies Act, the Crown was not entitled to any prerogative, priority or preferential rights or treatment save those expressly conferred & limited by the Act itself in particular by Section 230 & Sub-Section (2) of Section 232. They further held that the words 'other legal proceeding' in Section 171, Companies Act,, 1913 comprised any proceedings by the revenue authorities under Section 46(2), Income-tax Act, & accordingly before forwarding the requisite certificate under Section 46(2) to the Collector which would put the machinery for the collection of the arrears of income-tax as arrears of land revenue into motion the Income-tax Officer should have applied under Section 171, Companies Act for leave of the winding-up Court. The Federal Court however held that the jurisdiction conferred on the Allahabad High Court by Sections 2 & 3, Companies Act, is 'original jurisdiction' within the meaning of Sub-Section (1) of Section 226, Constitution Act, & putting into operation the machinery of Section 46, Income-tax Act, for the collection of arrears of income-tax as arrears of land revenue was 'an act done in the collection of revenue' within the meaning of the said Sub-Section (1) of Section 226 & the Allahabad High Court had therefore no jurisdiction to restrain the Income-tax authorities from proceeding without the leave of the Court to recover the arrears of income-tax in accordance with the pro visions of Section 46(2), Income-tax Act. In this case the Federal Court appears to have assumed that the High Court would have jurisdiction to consider claims by the Govt. in respect of revenue during the winding up & they appear to suggest in the judgment that the proper course for Govt. to pursue would be to prove in the winding up though the Court held that an injunction could not be issued by the Allahabad High Court to restrain the income-tax authorities from recovering their dues by reason of Section 226(1), Government of India Act. Spens C. J. at pp. 65 & 66 of the report however made it clear that after the judgment in that case any further action under Section 48(2), Income-tax Act, in the future would be taken in the light of that judgment & might well not be saved by the provisions of Section 226. There can be no doubt I think that it is implied in this judgment that the High Court has jurisdiction under the Companies Act to consider claims by the Govt. in winding up & that being so it appears to me that it would have jurisdiction to entertain a petition by Govt. based on taxes due to wind up a Company. Further a number of cases were cited in which a High Court, had entertained proceedings in winding up in respect of revenue, e.g., Governor General in Council v. Sargodha Trading Co. Ltd.', ILR (1943) 24 Lah 706, a decision in I was a party. It may be that having regard to the provisions of Section 226 which was not cited or considered in that case the actual decision may be erroneous but it is to be observed that the Federal Court did not suggest that in proper cases the High Court would have jurisdiction to entertain claims in respect of revenue in winding up. The H. C. of Madras in the case of 'Coimbatore Transport Ltd. v. Governor General in Council', I. L. R. (1949) Mad. 99 made an order winding up a Company on the petition of the Governor General. The debt upon which the petition was based was arrears of income-tax due from the Company. It is only fair to say however that it was not contended before the Bench of the Madras H. C. that that High Court had no jurisdiction to entertain the petition by reason of Section 226, Govt. of India Act.

8. Mr. P. R. Das argued that if by reason of Section 226, Govt. of India Act, a winding up Court could not go behind an assessment & ascertain whether or not it constituted a just debt then it would follow that the Court could have no jurisdiction to admit such claims at all. Mr. P. R. Das's argument was that a Court in winding up a Company is entitled to enquire into all debts whether they are decretal debts or not & that power according to him was essential to ensure that justice was done & that the assets of the company were equitably & justly distributed. If the Court could not go behind an assessment & determine whether it was a just assessment or not then Mr. Das urged that it was obvious that the winding up of companies in the High Court was not the appropriate procedure for enforcing debts in the nature of revenue. In my view 'Shiromani Sugar Mills' case' which is of course binding on us makes it impossible for this Court to accede to Mr. Das's argument. The P. C. proceeded upon the assumption that the Crown in a High Court could make use of the machinery of winding up of a Company & this they could never have assumed if Section 226, Govt. of India Act, gave this Court no jurisdiction to wind up a Company at the instance of the Crown who claimed a debt in the nature of revenue from a Company. Mr. Das then argued that no order for winding up should be made in this case as it was quite impossible for any Court to say whether or not this Company was insolvent & could not pay its debts. As I have already pointed out, the company only admitted liability in respect of income-tax, excess profits tax, etc. for Rs. 3,50,000/-whereas the Crown claimed a sum of slightly over rupees thirty five lacs. It is quite clear that if Rs. 3,50,000/- was due and owing then this company was insolvent. But it was clearly solvent if only Rs. 35,00,000/- were owing & indeed it would appear to be solvent if the income-tax claimed amounted to Rs. 15,00,000/- or so. Quite clearly this Court cannot go into the question whether or not this total assessment in respect of taxes made by the Income-tax authorities is justified as that would involve a decision relating to the actual assessment of revenue which is clearly barred by B. 226, Govt. of India Act. The appellants however did not ask us to consider the propriety or otherwise of these assessments but simply asked us to consider what had occurred in respect of these assessments. When the matter came before Sinha J. he was informed that a large lumber of appeals had been filed, but at the date of the hearing one only had been decided by an Assistant Commissioner & that had been decided against the appellants. Since the hearing before Sinha J. a number of appeals have been decided. Appeals Nos. 4310 & 4371 which were filed before the Income-tax Tribunal have succeeded & according to the appellants the assessment of income-tax & excess profits tax has been reduced as a result of these two appeals by about rupees eight lacs. The income-tax authorities say that the reduction Is slightly less. But even taking the figure given by the respondents the total claim in respect of taxes has been reduced as a result of these two appeals by Rs. 7,24,280/-. Four other appeals filed nave succeeded to this extent that orders of remand have been made in each appeal by the Tribunal & three appeals involved it is said, Income of Rs. 11,71,075/-. It appears that this company held shares in two partnerships which appear to have made large profits the other shares being held by certain directors & share holders. For the purposes of excess profits the income-tax authorities had lumped together the profits of the directors & shareholders with the profits of the company under Section 10(a), Excess Profits Tax Act. The contention of the taxing authorities was that the other partners in these two undertakings were merely nominees of the company & that the profits of both the undertakings belonged to the company & therefore the whole of the profits were assessed as profits of the company. It appears that the Income-tax Officer did not give the company adequate' opportunity of meeting this contention & accordingly the three appeals were remanded for reconsideration of the question as to whether or not these were genuine partnerships or whether in fact It was merely a means to enable the company to show less profits than they actually made. Two other appeals - Nos. 18 & 19 - which were filed before the Appellate Assistant Commissioner have also been remanded & it is said that these two appeals are in respect of an assessment amounting to over rupees six lacs. It seems that in the view of the Assistant Appellate Commissioner the Income-tax Officer had not exercised due care to examining the purchase account & this he directed should be done. We received in evidence the judgment of the Appellate Assistant Commissioner & it would appear from that judgment as if the prospects of the company in these two appeals are encouraging. (9) A number of other appeals have yet to be decided. But it is clear from what has-already occurred that the original assessment to respect of income-tax & excess profits tax is, to say the least of it, questionable. Admittedly a sum. of rupees between seven & eight lacs has already been allowed & must be deducted from the total: sum of Rs. 35,00,000/- & in the other appeals which have been remanded the amount of tax due may be substantially reduced. The other appeals are still pending & it is impossible to say what the results of such appeals will be. It is however clear that this claim of Rs. 35,00,000/- is hotly disputed & up to the present the appellants have obtained a considerable measure of success to attacking it. Those being the facts, Mr. P. R. Das has urged that it is quite impossible for this Court to say what is the real debt due from the company; to the Crown in respect of income-tax, excess profits tax etc. As there is this uncertainty it is urged that no Court could make a winding up order. In Buckley on Companies Acts, Edn. 11 at p. 356 it is said:

'A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the co. A petition presented obstensibly for a winding up order but really to exercise pressure will be dismissed & under circumstances may be stigmatized as a scandalous abuse of the process of the Court. Some years ago petitions founded on disputed debt were directed to stand over till the debt was established by action. If however, there was no reason to believe that the debt, if established would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But of course if the debt is not disputed on some substantial ground the Court may decide it on the petition & make the order.'

9. In the case of 'In Re Brighton Club & Norfolk Hotel Co. Ltd.' (1865) 35 Beav. 204 it was held that the provisions in the 25 & 26 Vict. c. 89 Sections 79, 80 for winding up a Co. in default of its paying debts three weeks after notice do not apply where there is a bona fide dispute as to the amount due, though there may be an admitted debt exceeding 50. Sir John Romilly M. R. observed:

'The meaning of the Act is this: If a debt above 50 which is not bona fide contested, be not paid or arranged within three weeks after demand, the Court may order the Company to be wound up. It is not sufficient for a company to say, 'we dispute the debt';, they must shew some reasonable ground for doing so. This is a bona fide contested debt & though more than 50 appears to be due, I do not think that it is such a case as was intended by the Act..................

Suppose the company said, 'We are now willing to pay the debt', then this question would arise: What is the debt, what is really due to the petitioner on the claim? I must then take the accounts & do the very thing which cannot be done except by bill, unless in cases where there is fraud & collusion & I should thus take complicated & contested accounts, between solvent persons, under the powers of an Act of Parliament which meant to do nothing but to wind up insolvent companies & to make them pay their debts, so far as their assets would extend. Par from being insolvent this company is carrying on a thriving business which I am asked to stop, merely because there is a quarrel between the company & their contractor as to what is due to him.'

In 'Bowes v. Directors of the Hope Life Assurance and Guarantee Company' (1865) 11 H. L. C. 389, Lord Cranworth observed at p. 401:

'The real question here is, whether the Master of the Rolls, before whom the matter originally came had before him a case in which there was such a clear proof of a valid debt, both at law & to equity that he had no other course to take but Immediately to direct the winding up; because I agree with what has been said, that it is not a discretionary matter with the Court when a debt is established & not satisfied to say whether the company shall be wound up or not; that is to say, if there be a valid debt established valid oath at law & in equity..........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 & in 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. And I think if a discretion is ever to be exercised as to the course to be pursued preliminary to deciding whether there is to be an order for winding up or not, it's such a case as this where, 'ex concessis', this is the sole debt. When I say 'the sole debt' there are also two small annuities upon the lives of two parties amounting together to about 40 a year; but I think those may be disregarded in considering this question. Therefore this is in fact a single creditor claiming under a judgment of a rather suspicious character to put the machinery of the Joint Stock Companies Act in motion for the purpose of winding up this company in order that he may have his-debt paid.'

It is to be observed that in the present case the unsecured debts other than the debt due to the Crown only amount to slightly less than rupees two lacs which is an insignificant amount compared with the huge claim of the Crown. A very similar rule has been applied in England in bankruptcy proceedings & in the case of 'Ex parte Lennox', In re. Lennox' (1886) 16 Q. B. D. 315 it was held that if a Court came to the conclusion that the debt relied upon by the petitioning creditor was not a real debt then the Court would not make an order adjudicating the debtor a bankrupt. The case of 'In re. Lennox' followed the earlier case of 'Ex parte Kibble'; 'In re. Onslow (1875) 10 Ch. A. 373. In that case an infant before the passing of the Infants' Relief Act gave a bill of exchange payable after his majority to a jeweller in payment for jewellery. After his majority & after the Act came into operation the creditor obtained judgment by ' default against him in an action on the bill of exchange & then took out a debtor's summons & on his failing to company with it filed a petition for adjudication against him. It was held that the Court of Bankruptcy would look into the consideration for the judgment & that if the conduct of the debtor in allowing the judgment to go by default against him operated as a ratification of the bill of exchange, such ratification was rendered void by Section 2 of the Act & the petition for adjudication was consequently dismissed. In these two cases the English Courts refused to make an order of adjudication which is similar to an order to wind up an insolvent company on the ground that it had not been established that the debts relied upon in the petitions were good & just debts. In these cases the Courts held that they were entitled to examine the debts which formed the bases of the petitions & ascertain whether such debts were really due. In 'Re. The United Stock Exchange Ltd.' (1885) 51 LT 687, it was held that where upon the hearing of a winding up petition presented by a judgment creditor evidence is before the Court upon which the issue of whether the judgment was or was not obtained by collusion can be decided the petition will be forthwith disposed of notwithstanding that the judgment has not been impeached in an action at law. In this case the Court in considering whether it would make a Winding up order examined whether the judgment or decree was or was not obtained by collusion to ascertain whether there was a real debt upon which the petition for winding up could be founded.

10. This question has also been considered by the Courts in India & there is an express decision of this Court upon the point in the case of 'The Company v. Sir Rameswar Singh', 23 C. W. N. 844. The facts were as follows: On 18-8-1915 the Company instituted a suit against its ex-directors, including the respondent, the petitioning creditor, for the recovery of a sum of rupees six lacs the charge against the respondent being neglect of duty. On 15-4-1916, the respondent instituted a suit against the company for the recovery of Rs. 2,83,747/- alleged to be due to him on account of deposit made by him with interest. The company in their written statement admitted the deposits denied that interest was payable & contended that if the Company's suit was successful nothing would be due to the respondent. The Company's suit first came on for hearing on 13-8-1917, was part heard on 26-8-1917, & after several adjournments was fixed for some day in January 1918. On 13-12-1917 a winding up petition was presented by the respondent against the company & usual directions were given as to the issue of advertisements. On the same day an application was made by the Company to stay the issue of advertisements in order that an apple. might be made by the Company for stay of all proceedings in connection with the winding up petition on the ground, that the said petition was an abuse of the process of the Court. On 14-12-1917, the said application was dismissed by Greaves J. The order provided that the Company should be at liberty to prefer an appeal against the order & upon their paying to the respondent the sum admitted to be due to him without prejudice to their contention the proceedings under the winding up petition would be stayed. The order also provided that the respondent should return the said sum to the Company should the appeal be decreed; but if the appeal was dismissed he would withdraw his petition for winding up. A Bench of this Court held that the learned Judge was wrong in dismissing the application in toto. The proper order to be made under the circumstances of the case was that the winding up proceedings should be stayed until the determination of the two suits. In that case the question arose whether or not the debt due to the petitioning creditor could be made the basis of a winding up order. At p. 857 Sanderson C. J., who delivered the judgment of the Bench observed:

'In this case the Company alleged there was a bona fide dispute & they were willing to pay what was found due on the taking of an account.

Now in this case we do not think it is necessary for us to decide finally whether there is a 'disputed claim' in fact; it is sufficient for us to say that it appears to the Court (1) that on the materials before it there is ground for supposing that there is a bona fide dispute as to a substantial part of the debt on which the winding up petition was based & (2) that the Company is solvent'.

It may well be argued in the present case that there is material before us for supposing that there is a bona fide dispute between the Company & the income-tax authorities relating to a substantial part of the debt said to be due from the company in respect of tax. That being so it is urged that we should follow the course followed by the Bench in 'Sir Rameswar Singh's' case & stay the winding up proceedings until the appeals preferred by the appellants before the Income-Tax Appellate Tribunal have been disposed of. The Madras High Court also considered this question in the case of 'Coimbatore Transport Ltd. v. Governor General in Council', I. L. R. (1949) Mad. 99 to which I have already made reference. In that case the Court held that a petition on behalf of the Govt. for the winding up of an incorporated Co. on the ground of its inability to pay its debts & the arrears of income-tax due by it is maintainable even though the company is disputing the quantum of tax assessed in further proceedings & the orders of assessment determining the tax are subject to further consideration in proceedings by way of appeal or reference. It was held that in the absence of security being furnished by the company the Court has power to order the winding up in such a case. The facts of that case differ very materially from the facts of the present case because in the present case the claim of over Rs. 35,00,000/-in respect of taxes has been very materially, reduced already & a number of appeals have been allowed & the matters in question remanded for further consideration which might result in further material reductions in the amount of taxes due. There are also other appeals pending which have not yet been heard. It appears to me that the present case is a very much stronger case than the Madras case & that it can be said in the present case that there are reasons for believing that the debt upon which the petition is based is a doubtful one.

11. I think it is clear from these cases that it is the duty of a Court which has jurisdiction to wind up companies to enquire whether the debt upon which a petition to wind up the company is founded is really due. In England & in India it has been held that the Court can go behind a judgment or decree in a proper case. Therefore it seems to me clear that where the Ct. is satisfied! that a debt upon which a petition to wind up is founded is a hotly contested debt & doubtful then I think the Court should not make a winding up order based upon such debt. There can be no doubt whatsoever that a sum of Rs. 35,00,000/- is not due in respect of income-tax, excess profits tax etc. But at the moment it is impossible to say what the debt actually amounts to. The account attached to the certificate of solvency showed that after allowing a sum of Rs. 3,50,000/- as income-tax there was a surplus of assets over liabilities be more than 12 1/2 lacs. Even assuming that this account is not strictly accurate, nevertheless it would appear as if this company could say at least rupees ten lacs or, perhaps even rupees fifteen lacs in respect of incometax, excess profits tax etc. & still be solvent. What the amount will be that will ultimately be found due it is impossible to say. It will certainly be more than Rs. 3,50,000/-, but it must be considerably less than Rs. 35,00,000/-. There can be no question that the dispute as to the amount of the debt is a bona fide one, because all the appeals so far decided have been decided in favour of the assessees, though only one appeal has, up to the present resulted in actual reduction in the assessment. But in that case the actual reduction is most substantial namely a sum between rupees seven & eight lacs. In my judgment, I do not think that a Court would be warranted in making a winding up order at the present moment because of the uncertainty as to the amount of the debt due to the Crown. I think the learned Judge should have adjourned the application for a reasonable time so that he could know the results of the appeals & thus be able to hold definitely whether or not this company was insolvent & unable to pay its debts.

12. Lastly, Mr. Das argued that an order for compulsory winding up should not be made because it was opposed by a majority of the creditors who had previously supported a proposal for voluntarily winding up the company. All the creditors other than the Crown supported the company & actually did so in the appeal before us. However it is quite clear that even including the secured creditor, the National Bank of India which claims a debt of Rs. 5,24,784/- the total sum due to all the creditors is roughly rupees seven lacs. If majority of creditors meant majority in number then there would be considerable force in Mr. P. R. Das's argument. But in my view majority means not majority in number but majority in value. Palmer in his book on Company Law, Edn. 19 deals with this question at p. 380, in these words:

'A petitioning creditor who cannot get paid a sura presently payable has, as against the company, a right, 'ex debito justitiae', to a winding up order; even though the assets are overcharged by debentures. This right to a winding-up order is however qualified by another rule, viz., that the Court will regard the wishes of the majority in value of the creditors & if for some good reason they object to a winding up order the Court in its discretion may refuse the order'. (See Re. 'West Hart-lepool Co.' (1875) 10 Ch. A. 618; & 'Re. Chapel House Colliery Co.' (1883) 24 Ch. D. 259).

In the present case even if the debt of the Crown be very substantially reduced I do not think that the position will ever be reached when the majority in value of the creditors oppose an application for winding-up & support a voluntary liquidation. That being so, I do not think it can be said that Sinha J., was wrong in not paying due regard to the views of the majority of the creditors. In the result therefore I hold that it was not established in this case that the debt alleged to be due to the Crown in respect of taxes was legally due. It is a hotly disputed debt & at the present moment it is quite impossible to say what will ultimately be found due from the company to the Crown. That being so, I do not think that Sinha J. should hare made a winding up order. He should in my view have adjourned the application for a reasonable time to await the results of these appeals.

13. The order of Sinha J. winding up the appellant company is therefore set aside. The application for winding up shall be kept on the tile, but its hearing is adjourned sine die. The Provisional Liquidators who had been appointed will continue to function on the same terms & conditions as before until further order. They shall afford all facilities to the lawyers of the company for the prosecution of the income-tax & excess-profits tax cases or appeals now pending. This case is remanded & the application for winding up shall be heard by the learned Judge taking Company matters after the final determination of the income-tax & excess profits tax cases or appeals now pending. Both the parties will be entitled to file affidavits after the final conclusion of the said income-tax & excess-profits tax cases or appeals stating the liabilities in respect of the income-tax or excess-profits tax as will be determined in those cases or appeals. On the conclusion of such cases or appeals the parties will have liberty to mention to the learned Judge for fixing a date for hearing of the winding up application. Costs of the hearing before Sinha J. & costs of this appeal will abide the final result of the winding up application. Certificate under Section 205(1), Govt. of India Act is granted. Certified for two counsel.

14. CHATTERJEE, J.: Under Section 218, Companies Act, as amended in 1936, the voluntary winding up of a company is no bar to the right to any creditor or contributory to have it would up by the Court. A creditor or a company involuntary liquidation on proving his judgment debt is entitled to an order for compulsory winding up of the company: 'In re. J. Millward & Co.Ltd.' (1940) 1 Ch. 353. The rule still prevails that the Court in such a case is bound to pay regard not only to the wishes of the petitioning creditor but also to those of all the creditors. 'In Re. Home Remedies Ltd.' (1943) Ch 1. But the majority in such a case means majority in value.

15. A winding up petition is a legitimate method of enforcing payment of a just debt. A petitioning creditor who cannot get paid a sum presently payable has as against the Company a right 'ex debito justitiae' to a winding up order. It is a mode of execution which the Court gives to a creditor when the company is unable to pay its debts: 'In re. Crigglestone Coal Co. Ltd.,' (1906) 2 Ch. 327. It is also settled law that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the Court and should be dismissed. Non-payment of a disputed debt is no proof of insolvency. 'London Wharfing Co.' (1865) 35 Beav. 37 : 55 E. R. 808). 'Brighton Club and Norfolk Hotel Co.' (1865) 35 Beav 204:55 E. R. 873) 'In re London and Paris Banking Corporation' (1875) 19 Eq. 444 & 'Satyarazu v. Guntur Cotton and Paper Mills', Co. Ltd.', 48 Mad 267. The right of a creditor to a winding up order is however not his individual right but a representative right 'Robson v. Dawson's Bank', 10 Rang. 143. The difficulty I felt in this appeal was as to the form of the order which should be passed by this Court. I have no doubt that the debts claimed by the respondent were disputed & that the dispute with resard to these debts is a bona fide & serious one. The mo dern practice is to dismiss a petition for winding up as it is not a legitimate means of seeking to enforce payment of a debt which is bona 5de disputed by a company (Buckley's Companies Act, Edn. 11 p. 357). Lord Wrenbury's passage in his text book was quoted with approva1 by Lord Greene M. R. 'In Re. Welsh Brick Industries Ltd.' (1946) 2 All E. R. 197. The learned Master of Rolls observed that there is no difference between the words 'bona fide disputed' & the words 'disputed on some suostantial ground'. I cannot accede to the contention of Mr. P. R. Das on behalf of the appellant company that Section 226, Govt. of India Act is a bar to the maintainability of an application on behalf of the Dominion of India for the winding up of a company on the ground of its inability to pay the arrears of income-tax due by it. With respect I agree with the view expressed by the Madras High Court in 'Coimbatore Transport Ltd. v. Governor General in Council I. LR (1949) Mad 99. In my opinion such an application is maintainable even if the company is disputing the quantum of the tax assessed in further proceedings. Logically much may be said in support of the contention of Mr. Das that a winding up petition based on tax dues is a mode of execution of a revenue claim & hence it is hit by Section 226. But the judgment of the Federal Court in 'Shiromoni Sugar Mills' case' 1946 F. C. R. 40 is binding on this Court. I agree with my Lord the Chief Justice that the Crown can invoke the machinery of the winding up Court for the recovery of revenue. It is urged by Mr. Gupta on behalf of the Dominion of India that under the Income-tax Act an assessment by the Revenue Authorities in final & binding & that under Section 226, Govt. of India Act this Court has no original jurisdiction in any matter concerning the revenue or concerning any act ordered or done in the rolleotion of revenue. This Court in ordering the winding up a company is exercising original jurisdiction, &, therefore, this Court has no jurisdiction to say that the assessments made by the revenue authorities are inflated or wrong or improper or that the taxes sought to be realised are not due. When a petitioner has already obtained a judgment in his favour the winding-up Court, may go into the question as to whether the judgment was obtained by collusion, although the same has not been impeached in an action law. 'United Stock Exchange' (51 L. T. 687). In one case the company was given an opportunity by the House of Lords to bring an action to set aside the judgment & the petition for winding-up was ordered to stand over. ('Bowes v. Hope Insurance' (1865) 11 H. L. C. 389. But an order, for winding-up is not ordinarily refused on the ground that the judgment is under appeal, specially when there is no order for stay of execution. 'In re. Amalagamated Properties of Rhodesia Ltd.' (1917) 2 Ch. 115.

16. Learned counsel for the Dominion has advanced arguments which, if accepted, would make it difficult for this Court to discharge its duty as a liquidation Court. The Crown urges that Section 226, Govt. of India Act, although it bears the original jurisdiction of this High Court in revenue matters does not preclude this Court from entertaining an application for winding-up, based on revenue claims or assessments in respect of income-tax. The Crown further contends that the Court is bound to make the order for winding up. Because it is the High Court, it is deprived of the Jurisdiction or authority to go behind the assessments. This Court, it is urged cannot scrutinise the debts on which the petition, is founded & must accept them as good petitioning creditor's debts. The condition precedent to the adjudication of an individual as a bankrupt is that the debtor is really insolvent, that is, he is unable to pay the debts due & payable by him. In bankruptcy proceedings the consideration of validity of a judgment debt may be enquired into by the Court of Bankruptcy, otherwise a man may allow any number of judgments & decrees to be passed against him by default & may thus deprive his creditors of their rights. (Exp. 'Kibble' (1875) 10 Ch. A. 373. The power of the Bankruptcy Court to enquire the validity of the judgment debt, where that debt is sought to be used for the purpose of obtaining a receiving order or an adjudication order, is very wide. Even where the debtor has consented to the judgment, if he alleges that in-spite of the judgment, there was no real debt, the Court Bankruptcy before making the adjudication order will enquire into the truth of the allegations. Exp. 'Lennox' (1886) 16 Q. B. D. 315. Order Esher M. R. pointed out that although by consenting to a judgment the debtor is estopped in the ordinary Courts from saying that there is no debt due, yet no such estoppel is efEectual as against the Court of Bankruptcy. That Court is not estopped by the conduct of the parties but it has a right to enquire into the debt. ('Re. Fraser', 9 Mor. 256). The same principle should be applicable in the case of proceedings for the winding-up of a company. Therefore, when a judgment is obtained against a company, the winding-up Court in a proper case is entitled to go into the question whether the judgment debt is good & valid debt which entitles the petitioning creditor to a winding up order. This Court, however, is being asked by the Dominion of India, in this case to make an order for winding up against a company on the ground of certain assessments for taxes. If the Dominion had obtained decrees in the ordinary civil Courts against the company, it would have been open to the Liquidation Court to enquire into the judgments or decrees passed against the company. But the Dominion contends that having regard to Section 226, Govt. of India Act this High Court is debarred from exercising that jurisdiction in this case, because of that 'antiquated fossil' on the Statute Book, which had its origin in the historic conflict between Sir Elijah Impey & Warren Hastings & which is a total misfit in the present set-up. It is urged that the view taken by the Lahore High Court in 'Sargodha Trading Co.'s' case, I.. L. R. (1943) 24 Lah. 706 that a Liquidation Court can in proper cases go behind the assessments is wrong. It is also urged that the contrary view taken 'In re. Calvert' (1899) 2 Q. B. 145 and in 'Dinshaw and Co. v. Income-tax Officer', I. L. R. (1941) Luck. 599 that an assessment cannot be challenged in liquidation proceedings is correct. This question will have to be decided in an appropriate case & it is desirable to have it settled by the Federal Court.

17. Really the Liquidation Court is placed in a very difficult & unsatisfactory position. The two judgments of the Federal Ct. in 'Governor General in Council v. Raleigh Investment' 1944 F. C. R. 229 & the 'Shiromoni Case' (1946) F. C. R. 40 lead to the conclusion that this Court is not competent to entertain any objection as to the validity of any assessments of revenue, although the Crown can avail of winding-up proceedings based on such assessments. Thus the winding-up Court cannot determine the condition which is pre-re quisite to the exercise of its jurisdiction to make a winding-up order. If the Court has got no such power, then the Court can dismiss such an application & can say that as it is being precluded from discharging its duty in determining the basic condition for winding-up, namely, whether there are good debts to justify a petition it would not exercise its discretion in favour of this petitioning creditor & would refuse to make the order for winding-up. In my view the Court should not accede to such extreme contentions & should see the justice is done to both the parties. The only way in which justice may be done in this case is to set aside the winding-up order made by Sinha J. but to keep the application for winding-up on She file & to refuse to pass any final order thereon unless & until there is a determination of the assessment proceedings & until the adjudication by the proper forum determines what is the real debt justly due to the Dominion of India in respect of income-tax. or excess profits tax. To deny an alleged debtor company the right to get the validity of its debts-scrutinised or determined by the appropriate tribunal, because the authorities want to enforce a revenue claim or demand against the company in a High Court by means of a winding-up petition may; lead to denial of justice in some cases. In Re. Catholic Publishing & Bookselling Co. (1864) 2 De G. J. & S 116: 33 L. J. Ch. 325: 46 E. R. 319, it is held by Turner L. J. that attempts to enforce by means of a winding up order the payment of a debt, the liability to which is bona fide disputed by the company, are not to be encouraged. But the convenient & proper course is not to try the question of debt upon the petition but to adjourn the hearing of the petition until the debt is established at law. In miy opinion this convenient course should be followed in this case. There is no question of establishing the debt at law ia this case. This Court has to hold that it has no jurisdiction to go into the question & to determine what amount js really due & payable by the company under the taxing statutes. In such a case the only question is whether this deprivation of jurisdiction should lead to the dismissal of the petition or whether the petition should be adjourned till the question of insolvency can be effectively determined on the final disposal of the tax cases or appeals now pending.

18. Shortly put, I am being asked to order the compulsory winding-up of a company because it is unable to pay its debts, i.e., the debts mentioned in the petition. I am satisfied that there is a genuine contest as to the said debts. Under the law this Court cannot decide what is the total revenue debt really due & I cannot come to any finding as to the validity or quantum of the taxes due. In these premises if I affirm the winding-up of the company, I would be doing something grossly inequitable. Section 226, Govt. of India Act does not go so far as to oust the jurisdiction of the High Court to decide whether in fact there is a bona fide dispute as to the existence or quantum if the alleged debts. Mr. P. R. Das, learned counsel for the company relied upon a number of cases & urged that when the petition is presented not with the view of obtaining a winding-up order but with the object of extorting from the company a larger sum than what was fairly due, then the petition should be dismissed. I must say that there is some force in the contention of Mr. Das that the object of the petition was to put pressure on the company. The methods pursued by the revenue authorities were, to say the least, high-handed. They had the giant's power & they used it like a gianti But it is not possible to hold that the application was wholly mala fide. The learned Chief Justice has dealt with the facts fully & I need not recount the same. If I could go into the question of quantum of the taxes, I would have come to a finding on this point & if I was satisfied that the real object was to extort a larger sum than the amount of taxes due & payable by the company, I would have dismissed the petition. In 'Re. A company' (1894) 2 Ch. 349, where a petition against a company is presented ostensibly for a wind-ing-up order, but really for another purpose, such as putting pressure on a company, the Court, has an inherent jurisdiction to prevent such an abuse of process, & will do so, by restraining the advertisement of the petition, & staying all proceedings upon it. That stage is now gone. The Court has inherent jurisdiction to stay proceedings where they amount to an abuse of its process. This is a recognised principle. But if the total amount the respondent is claiming or a good portion thereof is justly due, then the respondent as a creditor had the right to present a winding-up petition. Of course, it would be open to the company later on to urge that the debts mentioned in the petition were not due & the petition should fail on that ground, if ultimately the assessments are substantially reduced. In 'Ex. Parte The Rhydydefed Colliery Co. Glamorganshire Ltd. (1858) 3 De G and J. 80: 44 E. R. 1199, the Court ordered the petition of winding-up to stand over till it was ascertained by proceedings at law whether the petitioner was a creditor or not. Bowes v. Directors of the Hope Life Assurance and Guarantee Co.' (1865) 11 H.L.C. 389: 35 L.J.Ch. 574: 11 E. R. 1883 The creditor was an assignee of a judgment but the judgment was impeached. The petition was ordered to stand over the respondent undertaking to file a bill to impeach the judgment. Lord Cranworth observed that there was a single creditor claiming under a judgment of a rather suspicious character, who put the machinery of the Companies Act in motion for the purpose of winding up the company in order that he may have his debt paid. This case, therefore, is an authority for the principle that an order for winding up should not be made when the company wants to challenge or impeach a judgment in proper proceedings & then there is a reasonable doubt whether a valid debt exists or not.

19. It is contended by Mr. Gupta on behalf of the respondent that the Court should not entertain arguments as to whether a genuine or valid debt exists against the company inasmuch as the assessments had been made by the taxing authorities under the Income-tax statutes & such assessments are not open to challenge in this Court. In this case because of the special provisions in the Constitution Act debarring this Court on its original side from going into the question, we are told that we cannot entertain any doubt. We cannot accede to this argument. We have facts staring us in the face. Two appeals have succeeded and the assessment has been reduced to the extent of over Rs. 7,00,000. Some other appeals have been remanded. In the case of Excess Profits Tax appeals there is a question as to whether the liability is of the company or of the partnership. As a result of the partial success in some appeals the old notices of demand are inoperative & fresh notices will have to be served on the company. Admittedly the alleged debt of over Rs. 35,00,000 mentioned in the petition for winding-up is no longer subsisting. It is not possible to say what is the total debt now justly due by the company to the respondent. In a case where the debt is disputed, the Court has first to see whether that dispute is on the face of it genuine or merely a cloak of the company's real inability to pay its just debts. 'Tulsidas Lallubhai v. Bharat Khand Cotton Mills Co., Ltd.', 39 Bom. 47. Recourse should not be had to winding-up proceedings for the purpose of recovering a disputed debt or for stifling proceedings which seek to challenge or impugn such debts. On the facts of this case it Is impossible to say that the defence of the company is a cloak or contrivance to put off payment of its just debts.


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