TMI Blog1965 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, passed by the Sales tax Officer concerned. After the winding-up order, the Sales Tax Officer sent a letter, dated 8th August, 1958, to the official liquidator enclosing therewith a number of notices under section 14 of the Bombay Sales Tax Act, 1953, in the course of which he intimated that a sales tax inspector would be sent to the office of the official liquidator to examine the company's books of accounts for the different periods for which returns had been submitted by the company. On 10th September, 1958, the Sales tax Officer wrote another letter to the official liquidator requesting him " to register the claim of the sales tax office for the amount of sales tax due from the above dealer (the company) if it is found after verifying the account books of the dealer ". He added that a specific claim would be submitted as soon as the assessment orders were passed and that the claim of the department should be registered (exhibit' C' to the affidavit in rejoinder). Some time after the winding-up order, the company's textile mills began to be run by the Government of Maharashtra in accordance with the Unemployment Relief Scheme under orders which were passed by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rential creditors and the contributories of the company and also on the said company and its official liquidators". It is not disputed that if the sales tax department was a "creditor " in these proceedings, it was in the position of an "unsecured creditor (other than the employees of the company)" and was entitled to receive only 4 annas in a rupee in full and final settlement of its claim. Some time after the scheme was sanctioned, the Sales Tax Officer, A Ward, Unit 1, Bombay (the 5th respondent), proceeded to assess the company in respect of various periods from 1st November, 1952 to 31st March, 1957. Assessment orders for these periods were passed on different dates between 27th December, 1962, and 31st May, 1963 (exhibit 'H' to the petition). The amount of the assessment orders came to over one and a half lakhs of rupees. The company filed appeals against the assessment orders, and while doing so, the company paid 25 per cent, of the amount assessed in each case, that being the amount payable by the company according to the terms of the scheme of reconstruction. The appeals filed by the company against the assessment orders are still pending. On or about 11th July, 1963, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company." In the present case the company relies on sub-section (2) of section 391 in support of its plea that the sales tax department, being one of the creditors of the company, is bound by the scheme of reconstruction sanctioned by the court and is not, therefore, entitled to recover more than 25 per cent, of its claim. The respondents contend, on the other hand, that the sales tax department did not become a "creditor " of the company till the orders of assessment were passed, and that the department was not a "creditor" of the company at the time when the scheme of reconstruction was sanctioned by the court, and is not bound to confine its claim to 25 per cent, of the amount of sales tax to which the company has been assessed. The question to be decided, therefore, is whether the sales tax depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 391 of the present Act corresponds with section 206 of the English Companies Act, 1948, and the following observation on that section is found in Buckley on the Companies Ads, thirteenth edition, page 410: "A scheme under it ( i.e. , under section 206) is an alternative mode of liquidation, which by operation of law relieves the company and its contributories from liability further than that which is contemplated or imposed by the scheme." This observation was quoted with approval by Mr. Justice Patkar in his judgment in Motilal Kanji C o. v. Natvarlal M. Jhaveri [1932] 2 Comp. Cas. 64 : 33 Bom. LR 1495; AIR 1932 Bom. 78 , while explaining the purpose of section 153 of the Indian Companies Act, 1913. It would, therefore, follow that although section 391 of the present Act applies to a company which is being wound up as well as to a company which is not being wound up, the word "creditor" in that section should have the wide meaning which that word has in liquidation proceedings. In other words, if the sales tax department in the present case was a "creditor" of the company during the liquidation proceedings which preceded the order under section 391, the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a charge in respect of the previous year and that the assessment is necessarily made after the close of that year or period. Their Lordships went on to say: "But the liability to tax arises by virtue of the charging section alone, and it arises not later than the close of the previous year, though quantification of the amount payable is postponed." On the other hand, Mr. Banaji relied on the following observations of the Privy Council in Doorga Prosad v . Secretary of State [1945] 13 ITR 285, 289; AIR 1945 PC 62 relating to the Income-tax Act, 1922: "In their Lordships' opinion, although income-tax may be popularly described as due for a certain year, it is not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but it is due when demand is made under section 29 and section 45. It then becomes a debt due to the Crown, but not for any particular period." Mr. Banaji also relied on the decision of the Full Bench of the Calcutta High Court in In re Recols (India) Ltd. [1953] 4 STC 271 (FB). There the question for determination was whether a certain amount of sales tax due under the Bengal Finance (Sales Tax) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim which is present or future, certain or contingent, ascertained or sounding only in damages. In the present case, when the scheme for reorganisation of the company was sanctioned by the court, the sales tax department had a claim against the company, even though the claim might have been a future claim or even a contingent claim. The sales tax department, therefore, was a "creditor" of the company. In order to show that the word "creditor" does not have such a wide meaning even in liquidation proceedings, Mr. Banaji relied on the case in In re P enr-Y-Van Colliery Co [1877] 6 Ch. D. 477 . It was there held that a claim against a company for unliquidated damages on account of alleged fraudulent representation does not constitute the claimant a creditor, so as to entitle him to petition either for a winding-up order or a supervision order. It was observed that before he could so petition, he must make himself a creditor by changing his claim for damages into a judgment. It was found in that case, on facts, that the petitioner who had applied for the winding up of the company had, in fact, no claim at all. I doubt whether, in the present condition of the law, a person who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt into liquidation, and a scheme of arrangement under the Joint Stock Companies Arrangement Act, 1870, was adopted and approved by the court for forming a new company which should take over the assets and liabilities of the old company. After the new company was incorporated the lessee applied in the liquidation to have a sum provided to meet his contingent liability for rents, royalties, and breaches of covenant. It was held that the Joint Stock Companies Arrangement Act, 1870, applied to every person having a pecuniary claim against a company, whether actual or contingent, and that the lessee was bound by the scheme and that his application failed. In delivering the judgment of the Appeal Court in that case, Lindley L.J. observed: "Considering that that Act was passed in order to enlarge the powers conferred by section 159 of the Companies Act, 1862, we agree with Mr. Justice Wright ( i.e. , judge of the court below) in thinking that the word 'creditor' is used in the Act of 1870 in the widest sense, and that it includes all persons having any pecuniary claims against the company. Any other construction would render the Act practically useless." After this decision of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned counsel for the petitioner, is not sufficient to establish the relationship of creditor and debtor. The learned counsel for the petitioner has not been able to cite any direct authority for the proposition that even before an assessment is made the income-tax department becomes a creditor and it is obliged to prove its claim against the company in liquidation before the liquidator. " With great respect, I am unable to agree with these observations. It is clear from the judgment that the decision in In re Midland Coal, Coke and Iron Co. [1895] 1 Ch. 267 was not brought to the notice of the learned judge. I doubt whether the learned judge would have adopted the above view, if his attention were drawn to that case. It is not necessary that a person, in order that he may be a "creditor" in liquidation proceedings, should have an ascertained amount payable by the company. He is a "creditor" even if he has against the company a claim present or future, certain or contingent, ascertained or sounding only in damages. It is true that no individual notice was given in the above case to the Income-tax Officer concerned, nor had the Income-tax Officer entered appearance in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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