TMI Blog1949 (9) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 3,50,000/- though long before that date the Company had been assessed to the sum of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claration 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 ₹ 7,00,000/- whereas the appellants contend that the total assessment has been reduced by ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... howdhury 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 ₹ 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 Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties 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 ₹ 7,24,280/-. Four other appeals filed nave succeeded to this extent that orders of remand have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iderable 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 Norfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady 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 ₹ 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 bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 ₹ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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