PETITIONER: HARINAGAR SUGAR MILLS LTD. Vs. RESPONDENT: M. W. PRADHAN DATE OF JUDGMENT: 21/03/1966 BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. RAMASWAMI, V. SHELAT, J.M. CITATION: 1966 AIR 1707 1966 SCR (3) 948 ACT: Civil Procedure Code 1908, O.XL r. 1 (d)--Receiver directed by court to file winding up petition against debtor Company- Such direction whether permitted by said rule. Indian Companies Act, 1956, ss. 439(1) and 434-Whether Receiver appointed by Court is a 'creditor' within the meaning of s. 439-Notice given by Receiver to company asking it to pay to the Additional Collector the income-tax demanded from it under s. 46 of the Indian Income-tax Act, 1922-Such notice whether contravenes s. 434-Company not making payment to Additional Collector whether 'neglects to pay its debt, within meaning of s. 434. HEADNOTE: The appellant company purchased a farm from a joint Hindu family for Rs. 40 lacs out of which Rs. 25 lacs remained to be paid. The Income-tax Officer served a notice under s. 46 of the Indian Income-tax Act, 1922 on the company asking it not to pay the said amount of Rs. 251/- to the joint family but towards income-tax payable by the said family. Thereafter one of the members of the joint family filed a suit for the partition of the family assets and at his request the court appointed a Receiver. The Receiver by notice under s. 434 of the Companies Act asked the company to pay Rs. 25 lacs towards income-tax to the Additional Collector and when it did not do so he sought permission from the Court under O.XL r. 1 (d) of the Code of Civil Procedure to file a petition for winding up against the company,, which. was allowed. The Company's appeal to the Division Bench of the High Court failed and it appealed to this Court by special leave. The Court had to consider (i) whether the court could under O.XL r. 1 (d) of the Code authorize the Receiver to file a winding-up petition against the company, (ii) whether a roceived was a 'creditor' within the meaning of s. 439(1) of the Indian Companies Act, (iii) whether in asking the company to pay the sum in question to the Additional Collector the Receiver contravened s. 434, (iv) whether in not making the payment the company 'neglected to pay its debt' and (v) whether there was a bonafide dispute as to the liability of the company to pay the debt. HELD: (i) Assuming that a petition for winding up of- a company was not a suit within the meaning of O.XL r. 1 (d) of the Code, the other powers mentioned therein were comprehensive enough to enable the Receiver to take necessary proceedings to realise the property of and debts due to the joint family. A winding up petition is-one of the modes of realising debts form a company, and the Respondent therefore had power to file such a petition. Bowes v. Hope Life Insurance and Guarantee Co. (1865) It H.L.C. 388, Re General Company for Promotion of Land Credit, (1870) L.R. 5 Ch-D. 380 and Re National Permanent Building Society, (1869) L.R. 5 Ch.D. 309, Relied on. That apart, under O.XL, R. 1 (d) the Court can also confer on the Receiver such of those powers as the Court thinks fit. it is implicit in 948 949 this apparently wide power that it shall be confined to the scope of the Receiver's administration of the estate. if for the proper and effective management of the estate of which the Receiver has been appointed the Court thinks fit that it shall confer power on the said Receiver to take steps for the winding up of the debtor-company, it must be conceded that the Court shall have power to give necessary directions to the Receiver in that regard. [951 G-952 E] (ii) The Receiver was a 'creditor' within the meaning of s. 4396(1) (b) of the Indian Companies Act. [956 D] In Re Sacker, Ex Parte Sacker (1888) L.R. 22 Q.B. 179 and In reMacoun, L.R. (1904) 2 K.B. 700, considered. K. V. Mallayya v. T. Ramaswami & Co., [1963] II M.L.J. 100 (S.C.), relied on. (iii) By asking the company to pay the sum in question to the Addition Collector the requirements of s. 434 were not contravened. [957 D] Japan Cotton Trading Co. Ltd. v. Jajodia Cotton Mills Ltd. (1926) I.L.R. 54 Cal. 345, Kureshi v. Argu Footwear Ltd. A.I.R. 1931 Rang. 306 and W. T. Henley's Telegraph Works Co. Ltd., Calcutta v. Gorakhpur Electric Supply Co. Ltd., Allahabad, A.I.R. 1936 All. 840, referred to. (iv) By not paying the amount in question to the Additional Collector the company clearly neglected to pay the amount within the meaning of s. 434 of the Indian Income-tax Act. [958 H] In re Europe and Banking Company Ex Parte Baylis (1866) L.R. 2 Eq. 521, distinguished. (v) On the facts of the case them was no bona fide dispute as to the liability of the company to the joint family so as to render the winding up petition an abuse of the process of the Court. [959 F] W. T. Henley's Telegraph Works Co. Ltd., Calcutta v. Gorakhpur Electric Supply Co. Ltd., Allahabad, A.I.R. 1936 All. 840 and In re Gold Hill Mines, (1883) L.R. 23 Ch. D. 210, referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 569 of 1965.
Appeal by special leave from the judgment and order dated
December 14, 1964 of the Bombay High Court in Appeal No. 67
of 1964.
N. C. Chatterjee, S. T. Desai, M. M. Vakil, Ganpat Rai
and S. S. Khanduja, for the appellant.
S. V. Gupte, Solicitor-General, J. B. Dadachanji, O. C.
Mathur and Ravinder Narain, for the respondent.
The Judgment of the Court was delivered by
Subba Rao, J. The facts that gave rise to this appeal may be
briefly stated : On January 3, 1933, Messrs. Harinagar
Sugar Mills Ltd., hereinafter called the Company, was
incorporated under the Indian Companies Act, 1913 (Act 7 of
1913). Narayanlal Bansilal was the Chairman of the Board of
Directors of
950
the Company. He was also the karta and manager of the joint
Hindu family consisting of himself, his sons and daughters.
As such karta he purchased a large block of shares of the
Company from and out of the funds of the joint family. The
said family also owned a sugarcane farm at Harinagar in the
State of Bihar. On March 8, 1956, Narayanlal Bansilal and
his three sons sold the said farm to the Company for a sum
of Rs. 40,00,000. Under the sale-deed the Company agreed to
pay the price in instalments. Though the Company paid a few
instalments, a sum of Rs. 25,00,000. still remained to be
paid by it to the joint family. In July 1961, one of the
sons of Narayanlal Bansilal filed Suit No. 224 of 1964 on
the Original Side of the Bombay High Court against his
father and others for partition of the joint family
properties. Pending the suit, on October 20, 1961, the
Court, in exercise of its powers under O.XL, r. 1, of the
Code of Civil Procedure, appointed a Court Receiver as
Receiver of all the joint family properties. Long prior to
the filing of the said suit for partition, on July 24, 1956,
the Additional Income-tax Officer, Section V, Central Bombay
issued a notice to the Company under s. 46 of the Indian
Income tax Act, 1922, prohibiting it from paying the debt
due by it to the joint family and calling upon it to pay the
said amount to the Income-tax authorities towards income-tax
due from the said joint family. After the Receiver was
appointed, on June 29, 1962, the said Receiver issued a
notice under s. 434 of the Indian Companies Act calling upon
the Company to pay the amount, due from it to the joint
family, with interest to the Additional Collector of Bombay
towards the income-tax dues of the family and also informing
it that, in case the said payment was not made within 21
days of the receipt of the notice, proceedings for winding
up of the Company under the Indian Companies Act would be
taken. As the Company did not comply with the terms of the
said notice, the Receiver moved the High Court for
directions and obtained an order on November 22, 1963,
authorizing him to file a petition for winding up of the
Company. After obtaining the permission of the Court, on
January 10, 1964, the Receiver filed a petition in the High
Court for winding up of the Company. After hearing the
objections filed by the Company, Kantawala, J., admitted the
petition and directed advertisements to be given in the
newspapers and in the Government Gazette mentioning his
order. The Company preferred an appeal against that order
and that was heard by a division Bench consisting of Patel
and Tulzapurkar, JJ. The learned Judges dismissed the
appeal. Hence the present appeal, by special leave.
Mr. N. C. Chatterjee, learned counsel for the appellant Com-
pany, raises before us the same contentions which were
advanced unsuccessfully on behalf of the Company in the High
Court. We shall deal with the said contentions seriatim.
951
The first contention of the learned counsel is that the
Court Receiver had no power to file a petition in the Court
for winding up of the Company. Elaborating this contention
the learned counsel contends that under O.XL, r. 1(d), of
the Code of Civil Procedure a court can only confer on a
Receiver the power to bring a suit and that the expression
“suit” does not take in a petition for winding up of a
company.
Order XL, r. 1., of the Code of Civil
Procedure reads
Where it appears to the Court to be just and
convenient, the Court may by order-
(d) confer upon the receiver all such
powers, as to bringing and defending suits and
for the realization, management, protection,
preservation and improvement of the property,
the collection of the rents and profits
thereof, the application and disposal of such
rents and profits, and the execution of
documents as the owner himself has, or such of
those powers as the Court thinks fit.”
In exercise of the said power, the Court
appointed the respondent as the Court Receiver
on October 20, 1961, of the properties
belonging to the joint family in the suit.
The material part of the order reads :
IT IS FURTHER ORDERED that the Court Receiver
be and is hereby appointed’ Recevier of the
properties belonging to the joint family in
suit and all the books of accounts papers and
vouchers with all necessary powers under Order
XL Rule 1 of the Code of Civil Procedure
including power to vote and or exercise all
the property rights in respect of shares
belonging to the joint family in the several
joint stock companies mentioned in the plaint
including power to file
suit…………………………..
Under this order, all the necessary powers under O.XL, r. 1,
of the Code of Civil Procedure were conferred upon the
Receiver, including the right to file suits. Assuming that
a petition for winding up of a company is not a suit within
the meaning of O.XL, r. 1(d) of the said Code, the other
powers mentioned therein are comprehensive enough to enable
the Receiver to take necessary proceedings to realise the
property of and debts due to the joint family. Can it be
said that the petition filed by the Receiver for winding up
of the Company is not a mode of realisation of the debt due
to the joint family from the Company ? In Palmer’s Company
Precedents, Part 11, 1960 Edn., at p. 25, the following
passage appears
952
“A winding up petition is a 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.”
This view is supported by the decisions in Bowes v. Hope
Life Insurance and Guarantee Co.(1), Re General Company for
Promotion of Land Credit(2) and Re National Permanent
Building Society(3). It is true that “a winding up order is
not a normal alternative in the case of a company to the
ordinary procedure for the realisation of the debts due to
it”; but nonetheless it is a form of equitable execution.
Propriety does not affect the power but only its exercise.
If so, it follows that in terms of cl. (d) of r. 1 of O.XL
of the Code of Civil Procedure, a Receiver can file a
petition for winding up of a company for the realisation of
the properties, movable and immovable, including debts, of
which he was appointed the Receiver. In this view, the
respondent had power to file the petition in the Court for
winding up of the Company.
That apart, under O.XL, r. 1(d), of the Code of Civil
Procedure the Court can also confer on the Receiver such of
those powers as the Court thinks fit. It is implicit in
this apparently wide power that it shall be confined to the
scope of the Receiver’s administration of the estate. If,
for the proper and effective management of the estate of
which the Receiver has been appointed the Court thinks fit
that it shall confer power on the said Receiver to take
steps for winding up of the debtor-company, it must be
conceded that the Court will have power to give necessary
directions to the Receiver in that regard.
On November 22, 1963, the Receiver obtained the directions
of the Court empowering him to file the winding-up petition
against the Company. But, it is contended that the learned
Judge made that order without prejudice to the contentions
of the members of the joint family and that one of the
contentions was that a petition for the winding up of the
Company was not maintainable at the instance of the
Receiver. This reservation, no doubt, entitles the
appellant to raise the plea of the maintainability of the
petition by the Receiver for winding up of the Company, But
it does not bear on the question of authorization obtained
by the Receiver to file the said petition. The question of
the maintainability of the petition will be dealt with by us
at a later stage of the judgment. In this view also the
Receiver had the power to file the petition before the Court
for. winding up of the Company. There are, therefore, no
merits in the first contention.
The second contention of the learned counsel is that the
Court Receiver is not a “creditor” within the meaning of the
relevant
(1) [1865] 11 H.L.C. 388. (2) [1870] L. R. 5 Ch. D. 380.
(3) [1869] L.R. 5 Ch. D. 309.
953
sections of the Indian Companies Act. The relevant
provisions of the Indian Companies Act read’
Section 433. A company may be wound up by the
Court,-
(e) if the company is unable to pay its debts.
Section 434. (1) A company shall be deemed to
be unable to pay its debts-
(a) if a creditor, by assigning or
otherwise, to whom the company is indebted in
a sum exceeding five hundred rupees then due,
has served on the company, by causing it to be
delivered at its registered office,
by registered post or otherwise, a demand
under his hand requiring the company to pay
the sum so due and the company has for three
weeks thereafter neglected to pay the sum, or
to secure or compound for it to the reasonable
satisfaction of the creditor.
Section 439. (1) An application to the Court
for the winding up of a company shall be by
petition presented,subject to the provisions
of this section,-
(d) by any creditor or creditors, including
any contingent of prospective creditor or
creditors.
A combined reading of these provisions indicates that unless
the Court Receiver is a creditor by assignment or otherwise
to whom the company is indebted, he cannot maintain an
application under s. 439 of the Indian Companies Act. In
support of the contention that he is not such a creditor,
strong reliance is placed on the decision in In Re Sacker,
Ex Parte Sacker(1). The facts of that case, as given in the
head-note are as follows: In an action in the Chancery
Division a receiver was appointed to collect and receive
goods comprised in a charge given to the plaintiffs by one
of the defendants, including therein any balance of the
proceeds of the goods so charged in the hands of the other
defendant. An order was subsequently made for the payment
by the last-mentioned defendant to the receiver of a
specific sum, being money received by him in respect of the
proceeds of the goods, and comprised in the charge. The
Court of Appeal held that the receiver was not a “creditor”
entitled to present a bankruptcy petition against such
defendant within the meaning of s. 6 of the Bankruptcy Act,
1883. Lord Esher, M.R., in coming to the said conclusion
described the legal status of a receiver thus:
“The petitioner is a receiver. He is not a
trustee.
There is no debt due to him from the
appellant. He could
(1) [1888] L.R. 22 Q.B. 179,183,185,186.
954
not sue for this sum of money in his own name
either at law or in equity. Even if he could
by the authority of the Court sue for it in
his own name, is the money due to him
personally either at law or in equity? At law
it is certainly not. The debt was due to
another person for whom he is not a trustee.
The money will not be his when he has got it.
Would it be his in equity? I apprehend that
he would hold it subject to the authority of
the Court, who would deal with it according to
the circumstances of the case, but certainly
not for his benefit.”
Fry, L.J., said much to the same effect thus:
receiver; consequently he is not a good
petitioning creditor, and the petition cannot
be maintained.”
Lopes, L.J., expressed the same idea thus:
“To constitute a good petitioning creditor’s
debt the alleged debt must be certainly due
and payable to the person who presents the
petition. There is no debt due to this
receiver. He could not maintain an action of
debt for this money in his own name.”
This decision, therefore, goes to the extent of holding that
there is no debt due to a receiver either at law or in
equity, that he cannot maintain an action of debt for the
money in his own name and that, therefore, he is not a good
petitioning creditor. The scope of this decision was
explained by the Court of Appeal in In re Macoun (1) There,
on the dissolution of a firm of stock-brokers by the death
of one of the partners, the partnership assets, including a
debt to the late firm in respect of certain Stock Exchange
transactions, were assigned by the surviving partners to L
for the purpose of winding up the partnership, and notice of
the assignment was served on the debtor. L obtained a
decree against the debtor. Thereafter, he commenced an
action in the Chancery Division for the winding up of the
partnership, and in that action a receiver was ,appointed of
the partnership assets. The receiver took an assignment of
the judgment debt from L and obtained leave to issue
execution. Thereafter he served a bankruptcy notice on the
debtor and ultimately presented a bankruptcy petition
against the debtor. The Court of Appeal held that, as the
receiver had obtained an assignment of the judgment debt, he
was a creditor entitled to present a bankruptcy petition.
In the context, when the judgment in In re Sacker’s case(2)
was pressed upon the Court to come to a contrary conclusion,
Vaughan Williams, L.J., had this to say in regard
to that judgment:
(1) L. R. [1904] 2 K. B. 700, 703.
(2) [1888] L.R. 22 Q.B. 179.
955
“In these circumstances it seems to me that we
ought not to hold the case of In re Sacker(1)
to be an authority for the proposition that a
receiver cannot be a good petitioning creditor
even though the state of things is such that
he could maintain an action at law. It is
plain that Fry L.J. thought that he could; and
Lopes L.J. seems to have taken the same view-
that is, the view that if the receiver were
the holder of a bill of exchange he could be a
good petitioning creditor. In the present
case the receiver happens to be the assignee
of a judgment, and I think that being the
assignee of a judgment he can be a good
petitioning creditor even though when the
money is received it is recovered for the
purpose of enabling the Court of Chancery to
deal with it.”
A comparison of these two decisions leads to the following
legal position: If a receiver could maintain an action at
law or in equity for the recovery of a debt, he would be a
good petitioning creditor; and, if he could not, he would
not be one. In In re Sacker’s case(1) it was not possible
for the receiver to bring an action to recover the debt
either at law or in equity, whereas in Macoun’s case(2), the
receiver, having obtained the assignment of the debt, could
maintain an action at law for the recovery of the debt.
Therefore’, even in England a receiver, who can maintain an
action to recover a debt, would be a good petitioning
creditor. In India, the scope of the receiver’s power is
governed by the express provisions of the Code of Civil
Procedure. It is common place that a receiver appointed by
court has no estate or interest himself and the scope of.
his Power is defined by the provisions of O.XL of the said
Code and the specific- orders made by the Court thereunder.
He is frequently spoken to as the “hand of the Court”. In
exercise of the power under the said cl. (d) if a court
confers upon the receiver power to bring a suit to realise
the assets which are the subject-matter of the suit, it
cannot be denied that the said receiver can file suits to
recover the debts forming part of the said assets. This
Court in K. V. Malayya v. T. Ramaswami & Co. (3) held that a
receiver authorized to file suits to recover debts could
institute suits therefore in his own name. In that event,
the position of such a receiver is analogous to that of a
receiver who can file an action in law or in equity to
recover a debt under the English law. If the latter is a
creditor in English law in respect of the debt recoverable
by him, there is no reason why a receiver empowered to file
a suit under O.XL of the Code of Civil Procedure cannot be a
creditor. In one case there is a voluntary assignment and
in the other there is a statutory assignment.
(1) [1888] L.R 22 Q.B.179.
(2) L. R. [1904] 2. K. B. 700
(3) [1963] 2 M. L. J. 110 (S. C.).
956
The relevant provisions of the Indian Companies Act also
lead to the same position. Section 434 speaks of a creditor
by assignment or otherwise to whom the company is indebted
in a particular sum. Such creditor can file a petition for
winding up under S. 439 of the said Act. A creditor,
therefore, under the Indian Companies Act is any person who
acquires that character by assignment or otherwise. The
expression “otherwise” takes in any person to whom another
becomes indebted howsoever the relationship of creditor and
debtor is brought about between them. We come back to the
meaning of the word “creditor”. Stroud’s Judicial Diction-
ary, 3rd Edn., Vol. 1, defines “creditor” to mean a person
to whom a debt is payable. Though this is one of the many
definitions given in the said dictionary, this appears to be
the appropriate meaning. A receiver appointed by the court
to realise a debt can demand the payment of the debt. If
the debtor pays the debt to him, he gets a full discharge;
in default of payment, the receiver can file a suit in his
own name and obtain a decree. After obtaining the decree he
will certainly be a judgment-creditor. Such a receiver is a
person to whom a debt is payable by the debtor. In the
present case, the respondent was authorised to file suits to
realise the assets of the joint family, including the debt.
We hold that the respondent is a creditor within the meaning
of s. 439(1)(b) of the Indian Companies Act and, therefore,
is competent to maintain the petition for winding up of the
Company.
It is then contended that the notice issued by the Receiver
was not in strict compliance with the statutory requirements
of s. 434 of the Indian Companies Act. Two main defects are
pointed out, namely, the notice did not require the
appellant to pay the debt to the joint family or the
Receiver but to the Additional Collector of Bombay and the
said notice put it beyond the reach of the Company to secure
or compound for the debt to the reasonable satisfaction of
the Court Receiver. Section 434 of the Indian Companies Act
has been quoted earlier. Under the section before a company
shall be deemed to be unable to pay its debts two conditions
must be satisfied, namely, (i) the creditor shall have
delivered a demand in the prescribed manner on the company
to pay the sum due to him; and (ii) the company has for
three weeks thereafter neglected to pay the same, or to
secure or compound for it to the reasonable satisfaction of
the creditor. We have already held that the Receiver is a
creditor within the meaning of cl. (a) of s. 434(1) of the
Indian Companies Act. In the statutory notice issued by the
Receiver he had called upon the Company to make payment of
Rs. 25,00,000/ to the Additional Collector of Bombay by whom
the debt had been attached within the prescribed period of
21 days. He had to do so because the Additional Collector
had served a notice dated July 24, 1956, under s. 46(5)(a)
of the Indian Income-tax Act, 1922, calling upon the Company
to pay to him whatever
957
amount was held by the Company on account of the joint
family. Section 434(1)(a) of the Indian Companies Act does
not say that the demand made by the creditor on the Company
shall be to pay the amount due only to the creditor and not
to any other person; nor does it by necessary implication
impose any such condition. What is necessary is that the
debtor by paying the amount demanded shall be in a position
to get full discharge of his liability. In the present case
the Receiver directed the amount to be paid to the
Additional Collector of Bombay for the purpose of
liquidating the income-tax payable by the joint family.
Indeed, by paying the said amount,. and in view of the
notice served on the Company under s. 46(5)(a) of the
Indian Income-tax Act, 1922, the Company will get a full
discharge of its liability to the joint family. Section
46(5) (a) of the Income-tax Act says that any person making
any payment in compliance with a notice. under s. 46(5)
(a)shall be deemed to have made the payment under the
authority of the assessee and the receipt of the Income-tax
Officer shall constitute a good and sufficient discharge of
the liability of such person to the assessee. The Receiver,
therefore, in directing the amount to be paid to the Addi-
tional Collector of Bombay did not do anything in derogation
of the provisions of s. 434(1)(a) of the Indian Companies
Act.
Nor are there any merits in the second link of the
contention. The question is whether, if proceedings were
taken against the Company under s. 46(5)(a) of the Indian
Income-tax Act, the Company was deprived of the opportunity
to pay the sum due to the respondent or to secure or
compound for it to the reasonable satisfaction of the
creditor within the meaning of s. 434(1)(a) of the Indian
Companies Act. After the statutory notice the Company could
pay the sum demanded or secure or compound for it to the
reasonable satisfaction of the creditor. The section does
not confer a right on a debtor but only gives him an
opportunity to discharge the debt in one or other of the
ways mentioned therein. The debtor could secure or compound
for a debt only where the circumstances under which the
demand is made permit such a mode of discharge. But whereas
in this case both the debtor and the creditor were under an
obligation to discharge the income-tax dues and, as the
creditor directed the debtor to pay the entire amount due to
him towards the income-tax dues, there is no scope for the
debtor to approach the creditor for securing or compounding
his claim. In this view, no right of the Company is
violated, as it has done under s. 434(1)(a) of the Indian
Companies Act. That apart, s. 46(5)(a) of the Indian
Income-tax Act does not in terms prevent the debtor from
compounding his claim with the creditor. It only directs
him to hold the money for or on account of the assessee to
pay to the Income-tax Officer. But, if in contravention of
the notice issued to him, the debtor pays the said money to
the creditor, he will be personally liable to the extent of
the liability discharged or to the extent of
958
the tax and penalties, whichever is less. The Income-tax
Officer can also proceed against the debtor, as if the
amount in respect whereof the notice was issued was attached
by the Collector in exercise of his powers under the proviso
to sub-s. (2) of S. 46 of the Indian Income-tax Act. These
provisions do not prevent the debtor from compounding his
claim with the creditor. If he compounds the claim, any
agreement entered into by him with the creditor will not
affect his liability to pay the income-tax of the creditor
to the extent covered by the notice issued under S. 46(5)
(a) of the Income-tax Act; but the agreement would certainly
be binding between the creditor and the debtor. The Income-
tax Officer has no concern with it. In either view,
therefore, the notice cannot be said to have been issued in
contravention of the provisions of S. 434(1)(a) of the
Indian Companies Act. No doubt courts have held’, in our
view rightly, that a statutory notice under s. 434(1)(a) of
the Indian Companies Act shall strictly comply with the
provisions of the said section: see Japan Cotton Trading Co.
Ltd. v. Jajodia Cotton Mills, Ltd.(1); Kureshi v. Argus
Footwear Ltd.(2); and W. T. Henley’s Telegraphs Works Co.,
Ltd., Calcutta v. Gorakhpur Electric Supply Co., Ltd.,
Allahabad(3). But in this case the statutory notice issued
by the respondent did not violate any of the requirements of
the Section. We, therefore, reject this contention.
The next contention is that the appellant had not neglected
to pay the sum to the respondent, as the said amount must be
deemed to have been attached by the Collector in exercise of
his powers under the proviso to sub-s.(2) of s. 46 of the
Indian Income-tax Act, 1922. In support of this contention
reliance is placed upon In re European Banking Company Ex
Parte Baylis (1). There, a petition was presented for
winding-up of a Banking Company for a debt of pound 65 due
to the petitioner; but the said debt was attached in the
Lord Mayor’s Court. The petition was dismissed on the
ground that, though the attachment did not absolutely do
away with the debt, it seized the debt into the hands of the
Lord Mayor’s Court. in that case the demand was that the
debtor should pay the amount to the petitioning creditor and
because of the attachment of that amount by Lord Mayor’s
Court the debtor could not pay the amount to the creditor.
But that judgment cannot possibly be of any help to the
appellant, for in the instant case the Receiver asked the
debtor to pay the amount due to the joint family to the
Additional Collector, Bombay, towards the income-tax due
from the joint family. The debtor was not only not asked to
do some thing which was legally prohibited but was asked to
comply with the Collector’s requisition under S. 46 of the
Indian Income-tax Act, 1922. By not doing so, the Company
clearly neglected to pay the amount within the meaning of s.
434 of the Indian Companies Act.
(1) [1926] 1.I.R. 54 Cal. 345.
(3) A.I.R. 1936 All. 840.
(2) A.I.R. 1931 Rang. 306.
(4) [1866] L.R. 2 Eq. 521.
959
Lastly it is argued that there was a bona fide dispute in
respect of the liability of the Company to the joint family.
It is said that the Company’s case was that the debt was due
to four individuals mentioned in the conveyance, namely, the
father and his three sons, whereas the Receiver’s case was
that the amount was due to the joint family and, therefore,
in the circumstances it cannot be said that the Company
neglected to pay the amount to the Receiver. In W. T.
Henley’s Telegraph Works Co., Ltd., Calcutta v. Gorakhpur
Electric Supply Co., Ltd., Allahabad(1) it was ruled that a
mere service of notice of demand of debt by a creditor on a
solvent company did not entitle the creditor to a winding-up
order if the company bona fide disputed the existence of the
debt. In that case it was found that there was a bonafide
dispute between the parties and that the notice issued was a
vehicle of oppression and an abuse of the process of the
Court. But the same cannot be said in the present case. In
In re Gold Hill Mines(2) also a winding-up petition was
dismissed on the finding that it was an abuse of the process
of the Court, it being a petition to compel payment of a
small debt which was under bona fide dispute.
In the present case, Narayanlal Bansilal was not only the
karta of the joint family but was also the Chairman of the
Board of Directors of the Company. In the partition suit he
filed an affidavit wherein he stated:
“Referring to para 10(c) of the affidavit I
deny there is any manipulation in the balance
sheet of Harinagar Sugar Mills Ltd., as
falsely sought to be suggested by. the 3rd
defendant. No loan of Rs. 25,00,000/- has
been given by me to the said company. The
said amount is the balance of the purchase
price payable by the said company to the joint
family in respect of Harinagar Cane Farm.”
In view of the said affidavit it is manifest
that the alleged dispute was not bonafide but
was only a part of a scheme of collusion bet-
ween the Company and the karta of the joint
family. There are, therefore, no merits in
any of the contentions raised by the Company.
In the result, the appeal fails and is
dismissed with costs.
Appeal dismissed.-
(1) A.I.R. 1936 Au. 840.
(2) (1833) L.R. 23 Ch. D. 210.
M12Sup. CI.166-2,500-11-2-67-GIPF.
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