Case: V.M. Deshpande Vs. V.S. Kondaskar, Official Liquidator

2. It is sufficient to notice that in the Company Petition No. 221 of 1958 the Official Liquidator was appointed Interim Liquidator of the Mills Company by an Order dated May 1, 1959. By an Order dated October 7, 1959, the Mills Company was ordered to be wound up and the Official Liquidator was confirmed as Liquidator of the Mills Company with all powers under Section 457 of the Companies Act 1956. By six different Notices dated August 23, 1966. issued under Section 14 of. theOfficer, Companies Circle I (8), Bombay, recorded in respect of the assessment years56 that the Mills Company had escaped assessment within the meaning of Section 147 of theAct, 1961, and that he therefore proposed tothe income of the Mills Company for these assessment years and called upon the Liquidator to deliver to him within thirty days a return in the prescribed form of the income of the Mills Company assessable for these years. It was recorded that the said Notices were being issued after obtaining the necessary satisfaction of the Central Board of Direct Taxes.3. By six different Notices for each of the above assessment years dated December 31, 1966, issued under Section 142 (1) theOfficer, Companies Circle, referred to the above prior six Notices and called upon the Official Liquidator to produce certain documents and give in writing duly verified in the prescribed manner information called for in the forms attached thereto and on the points or matters specified, to theOffice on January 19, 1967.4. In connection with the above Notices, by the Judges Summons dated July 1, 1967, the Official Liquidator of the Mills Company claimed that the Notices should be quashed and/or set aside and cancelled and also for certain directions and an order of injunction restraining the appellants from in any way assessing or reassessing the Mills Company for the above six assessment years. The grounds in support of the claims made in the Summons appear in paragraph 26 of the affidavit in support dated July 1, 1967. made by B. J. Rele, the then Official Liquidator.5. The main contentions made before the learned Judge on behalf of the Mills Company were that the reassessment proceedings (under the above notices under Section 148 of theAct, 1961) against the Mills Company could only be instituted or commenced after first obtaining leave of the Company Court under Section 446 (1) of the Companies Act, 1956. The consequential submission was that the proceedings having been commenced without such leave were without jurisdiction and a nullity.6. On behalf of the appellants two contentions which were advanced before the learned Judge were as followsThe notices for reassessment issued under Section 148 were not "legal proceedings" within the meaning of that phrase in Section 446 (1) of the Companies Act, and(2) Assuming that the reassessment proceedings started under the above notices were "legal proceedings" leave of the Company Court undersubsection (1) of Section446 of the Companies Act was not necessary, because theOfficer alone had exclusive jurisdiction to make reassessment and to determine the tax liability. The proceedings were such as in respect whereof no Civil Court, including the Company Court, could have jurisdiction of any kind. This contention is hereinafter referred to as the above second contention.7. The learned Judge accepted the contentions made on behalf of the Official Liquidator and observed that on the plain reading of Section 446 (1) there was no reason whatsoever for coming to the conclusion that the expression "legal proceedings" would not include a proceeding for assessment or reassessment under theAct. In support of that observation he referred to the decision of the Federal Court in the case of Governor General v. Shiromani Sugar Mills, 14 ITR 248 : 48 Bom LR 482 where also the question of the true effect and construction of Section 171 of the Indian Companies Act, 1913, which is in pari materia with the provisions of Section 446 (1) of the Companies Act, 1956, arose. Reference was also made to the case of Abdul Aziz v. State of Bombay, 59 Bom LR 1259 , where a Division Bench of this Court came to consider the phrase "legal proceedings" ascontained in theAct, 1953, and in that connection referred to the provisions of Section 7 (e) of the Bombay General Clauses Act. Reference was also made in that very connection to the decision of the Supreme Court in the case of Union of India v. India Fisheries Pvt. Ltd., A.I.R. 1966 Supreme Court 35, where the Supreme Court came to consider the true effect of Section 446 (1). The learned Judge negatived the submission made by Mr. Joshi for the appellants that the phrase "legal proceeding" was synonymous with "judicial proceeding."8. In connection with the above second contention Mr. Joshi for the appellants relied before the learned Judge and in this appeal on the decision of the Supreme Court in the case of Damji Valji v. L. I. C. of India, A.I.R. 1966 Supreme Court 135. In that case the Supreme Court had made certain observations which might have been construed as supporting the second contention made by Mr. Joshi, but the learned Judge held these observations to be per incuriam and rejected the contention. The learned Judge accordingly granted an order of injunction as already recited above.

Reasoning:
10. We do not propose to decide the correctness or otherwise of the arguments advanced on behalf of the parties on the above first contention made by Mr. Joshi because as discussed hereunder, having regard to the observations of the Supreme Court in the case of A.I.R. 1966 Supreme Court 135 it would be incorrect to hold that in respect of the assessment proceedings adopted against the Mills Company leave of the Court was necessary under Section 446 (1) of the Companies Act, 1956. It is convenient to deal with the above second contention made on behalf of the appellants at this stage.Now it is quite clear that the Supreme Court has held in the above paragraph that the provisions ofsubsection (1) of Section446 are consequential to the provisions of(2) of Section 446 and that this is so because under(2) exclusive jurisdiction is conferred on the Company Court to dispose of all suits or proceedings by or against a Company and further that the consequential provisions ofsubsection (1) of Section446 are not attracted and cannot be applied to proceedings (like those before Life Insurance Tribunal) before an administrative Tribunal and/or a Tribunal which is given exclusive Jurisdiction to decide and determine matters arising under the relevant Act. Apparently, in connection with matters of exclusive jurisdiction triable by special Tribunals in paragraph 19 the Supreme Court observed that "the provisions of the special Act, i.e., the L.I.C. Act, will override the provisions of the general Act, viz., the Companies Act, which is an Act relating to companies in general". It appears that the Court formulated a view that in matters which are by special Acts liable to be decided, determined and disposed of by special Tribunals of exclusive jurisdiction, the Company Court will not have any jurisdiction under(2) of Section 446 and that consequently in connection with such matters or proceedings, even if they are legal proceedings, leave of Court would not be necessary undersubsection (1) of Sectionrightly submitted that the phrase "legal proceedings" in Section 171 related to the same matter as is contained insubsection (1) of Section446. He rightly submitted that Section 171 and this phrase in the section was the subject matter of decision of the Federal Court in the case of A.I.R. 1946 FC 16 and the construction of that phrase as made by the Federal Court has been cited with approval by the Supreme Court in the case of A.I.R. 1955 Supreme Court 604. Though the section was not referred to, there was some discussion about the jurisdiction of the Company Court and theAuthorities in the case of A.I.R. 1966 Supreme Court 35. His submission was that the observation of the Supreme Court in the case of A.I.R. 1966 Supreme Court 135 had in no way limited or restricted the meaning of the phrase "legal proceedings". He strongly relied upon the fact thatsubsection (1) of Section446 was the only part of that section before the Amending Act 65 of 1960 introduced(2), (3) and (4). He therefore was emphatic in his submission that these newly addedhad not changed the meaning of the phrase "legal proceedings" and that the phrase must be held to have continued to have the same meaning as was ascertained by the Federal Court in the ease of Shiromani Sugar Mill. In his submission the consequence of the observation of the Supreme Court in the case of A.I.R. 1966 Supreme Court 135 was that theCourt would have exclusive jurisdiction under the IndianAct and would therefore be entitled to proceed under that Act to assess quantum of tax dues of the Mills Company and he therefore argued that the assessment proceedings against the Mills Company would become stayed in accordance with the provisions in Section 446 (l). In his submission wherever conflict of jurisdiction for disposing of claims against Company appeared it would be settled by deciding if the jurisdiction provisions are special and/or general. The special would exclude the general. In his submission the provision in Section 148 of theAct whereunder the notices in question were issued was a general provision relating to all assessees. On the contrary, in connection with the very same matter Section 446(2) was a special provision applicable only to companies inIn the result the proceedings under Section 148 were liable to be set aside. In this connection he particularly relied upon the observations of the Supreme Court in the case of A.I.R. 1966 Supreme Court 35.23. In connection with these contentions it first requires to be recorded that in the case of Shiromani Sugar Mills the question related to the proceedings commenced under Section 46(2) of theAct for recovery of already assessed tax. Though the assessment of quantum of tax had taken place subsequent to the date of theorder the question that the assessment proceedings were unauthorised or invalid because leave of the Court under Section 171 had not been obtained was not raised or decided. In connection with the recovery Proceedings the Court was called upon to find out the true meaning of the phrase "legal proceedings" as contained in Section 171. In that connection the Court first noticed that under Section 289 of the Indian Companies Act 1913, only limited priority was fixed in connection with Crown debts. Ordinarily. Crown debts ranked for payment pari passu with ordinary creditors The Court also noticed that except for the machinery provided in Section 171 for compelling the department to get leave of Court before proceeding to make recovery, there was no machinery for having the account of the monies recovered and for securing the recovered monies into Court so that the assets of the Company inwere duly distributed pan passu amongst all ordinary creditors. In connection with the meaning of the phrase "legal proceedings" the argument on behalf of the Revenue was that it must be in the nature of a suit and reliance was placed in that connection on the observations of the Full Bench of the High Court at Lahore in the case of Shukantla v. The Peoples Bank of Northern India Ltd., ILR (1941) 22 Lah 760 : A.I.R. 1941 Lahore 392 FB). The Federal Court negatived the submission. The Court observed that the phrase "legal proceedings" need not be confirmed to original proceedings in a Court of first Instance, analogous to a suit, initiated by means of a petition similar to a plaint. Section 171 must, in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act." Having seen  the scheme of Sections 232 and 211 the Court found that "no narrow construction should be placed upon the words or other legal proceeding in Section 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with "ordinary suits against the Company." The further observations were "but we see no reason why in British India no legal proceeding can be taken otherwise than in an ordinary Court of law or why a proceeding taken elsewhere than in an ordinary Court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as a legal proceeding ". Similarly a Division Bench of this Court in the case of (A.I.R. 1958 Bombay 279, definitely observed in the context of Section 48(2) of theAct, 1953. that "legal proceeding in its normal connotation can only mean a proceeding in accordance with law, and there can be no doubt that assessment proceedings which are under the Sales Tax Act are such proceedings". The further relevant observation was n 171. In that connection the Court first noticed that under Section 289 of the Indian Companies Act 1913, only limited priority was fixed in connection with Crown debts. Ordinarily. Crown debts ranked for payment pari passu with ordinary creditors The Court also noticed that except for the machinery provided in Section 171 for compelling the department to get leave of Court before proceeding to make recovery, there was no machinery for having the account of the monies recovered and for securing the recovered monies into Court so that the assets of the Company inwere duly distributed pan passu amongst all ordinary creditors. In connection with the meaning of the phrase "legal proceedings" the argument on behalf of the Revenue was that it must be in the nature of a suit and reliance was placed in that connection on the observations of the Full Bench of the High Court at Lahore in the case of Shukantla v. The Peoples Bank of Northern India Ltd., ILR (1941) 22 Lah 760 : A.I.R. 1941 Lahore 392 FB). The Federal Court negatived the submission. The Court observed that the phrase "legal proceedings" need not be confirmed to original proceedings in a Court of first Instance, analogous to a suit, initiated by means of a petition similar to a plaint. Section 171 must, in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act." Having seen  the scheme of Sections 232 and 211 the Court found that "no narrow construction should be placed upon the words or other legal proceeding in Section 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with "ordinary suits against the Company." The further observations were "but we see no reason why in British India no legal proceeding can be taken otherwise than in an ordinary Court of law or why a proceeding taken elsewhere than in an ordinary Court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as a legal proceeding ". Similarly a Division Bench of this Court in the case of (A.I.R. 1958 Bombay 279, definitely observed in the context of Section 48(2) of theAct, 1953. that "legal proceeding in its normal connotation can only mean a proceeding in accordance with law, and there can be no doubt that assessment proceedings which are under the Sales Tax Act are such proceedings". The further relevant observation was that "It must be remembered in this context that the expression legal proceeding is not synonymous with judicial proceeding. Proceedings may be legal even if they are not judicial proceedings, if they are authorised by law; and Mr Palkhiwala. by his argument, undoubtedly requires us to equate the expression "legal proceeding" in Section 48,(2)(vii) with judicial proceedings for which in our opinion there is no warrant in law. " The ultimate finding of the Court in that case was that "the expression" "legal proceeding" in Section 48(2)(ii) includes assessment proceedings, x x x x". Now Mr. Chagla insisted that having regard to the history of the legislation in Section 171 and Section 446(1) and the above observations in connection with the phrase "legal proceedings" the finding of Mr. Justice Vimadalal that the assessment proceedings commenced by the impugned notices were "legal proceedings" must be accepted as correct. According to him this being the correct posin 171. In that connection the Court first noticed that under Section 289 of the Indian Companies Act 1913, only limited priority was fixed in connection with Crown debts. Ordinarily. Crown debts ranked for payment pari passu with ordinary creditors The Court also noticed that except for the machinery provided in Section 171 for compelling the department to get leave of Court before proceeding to make recovery, there was no machinery for having the account of the monies recovered and for securing the recovered monies into Court so that the assets of the Company inwere duly distributed pan passu amongst all ordinary creditors. In connection with the meaning of the phrase "legal proceedings" the argument on behalf of the Revenue was that it must be in the nature of a suit and reln 171. In that connection the Court first noticed that under Section 289 of the Indian Companies Act 1913, only limited priority was fixed in connection with Crown debts. Ordinarily. Crown debts ranked for payment pari passu with ordinary creditors The Court also noticed that except for the machinery provided in Section 171 for compelling the department to get leave of Court before proceeding to make recovery, there was no machinery for having the account of the monies recovered and for securing the recovered monies into Court so that the assets of the Company ine duly distributed pan passu amongst all ordinary creditors. In connection with the meaning of the phrase "legal proceedings" the argument on behalf of the Revenue was that it must be in the nature of a suit and reliance was placed in that connection on the observations of the Full Bench of the High Court at Lahore in the case of Shukantla v. The Peoples Bank of Northern India Ltd., ILR (1941) 22 Lah 760 : A.I.R. 1941 Lahore 392 FB). The Federal Court negatived the submission. The Court observed that the phrase "legal proceedings" need not be confirmed to original proceedings in a Court of first Instance, analogous to a suit, initiated by means of a petition similar to a plaint. Section 171 must, in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act." Having seen  the scheme of Sections 232 and 211 the Court found that "no narrow construction should be placed upon the words or other legal proceeding in Section 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with "ordinary suits against the Company." The further observations were "but we see no reason why in British India no legal proceeding can be taken otherwise than in an ordinary Court of law or why a proceeding taken elsewhere than in an ordinary Court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as a legal proceeding ". Similarly a Division Bench of this Court in the case of (A.I.R. 1958 Bombay 279, definitely observed in the context of Section 48(2) of theAct, 1953. that "legal proceeding in its normal connotation can only mean a proceeding in accordance with law, and there can be no doubt that assn our view, such proceedings are other legal proceedings against the company, as contrasted with "ordinary suits against the Company." The further observations were "but we see no reason why in British India no legal proceeding can be taken otherwise than in an ordinary Court of law or why a proceeding taken elsewhere than in an ordinary Court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as an our view, such proceedings are other legal proceedings against the company, as contrasted with "ordinary suits against the Company." The further observations were "but we see no reason why in British India no legal proceeding can be taken otherwise than in an ordinary Court of law or why a proceeding taken elsewhere than in an ordinary Court of law, provided it be taken in a manner prescribed by law and in pursuance of law or legal enactment, cannot properly be described as a legal proceeding ". Similarly a Division Bench of this Court in the case of (A.I.R. 1958 Bombay 279), definitely observed in the context of Section 48(2) of the, 1953. that "legal proceeding in its normal connotation can only mean a proceeding in accordance with law, and there can be no doubt that assessment proceedings which are under the Sales Tax Act are such proceedings". The further relevant observation was that "It must be remembered in this context that the expression legal proceeding is not synonymous with judicial proceeding. Proceedings may be legal even if they are not judicial proceedings, if they are authorised by law; and Mr Palkhiwala. by his argument, undoubtedly requires us to equate the expression "legal proceeding" in Section 48,(2)(vii) with judicial proceedings for which in our opinion there is no warrant in law. " The ultimate finding of the Court in that case was that "the expression" "legal proceeding" in Section 48(2)(ii) includes assessment proceedings, x x x x". Now Mr. Chagla insisted that having regard to the history of the legislation in Section 171 and Section 446(1) and the above observations in connection with the phrase "legal proceedings" the finding of Mr. Justice Vimadalal that the assessment proceedings commenced by the impugned notices were "legal proceedings" must be accepted as correct. According to him this being the correct position in law, we should proceed to hold in his favour that there is nothing in the decision in the case of A.I.R. 1966 Supreme Court 135 which has affected the above position In support of that submission he has placed strong reliance on the contents of(3) and (4) of Section 446 Now it is quite clear that under(4) of Section 446, in spite of aorder having been made in connection with proceedings pending in appeal before the Supreme Court or a High Court, leave under Section 446(1) is unnecessary. It is also clear that under(3) the winding up Court, in its discretion, may notwithstanding anything contained in any other law for the tune being in force, transfer to itself any suit or proceeding and dispose of the same. Relying on this part of the section Mr. Chagla sought to argue that under(2) exclusive jurisdiction is created in a winding up Court in connection with the matters mentioned in that sub section. He therefore argued that the true effect of the observations of the Supreme Court in the case of A.I.R. 1966 Supreme Court 135 was that in each and all proceedings in which a claim is made for of against a Company in liquidation the same was within the "jurisdiction of the Company Court and for that reason the assessment proceeding commenced by the impugned notices was within the jurisdiction of the Company Court. We should, therefore, hold that the order of injunction granted by the learned Judge was justified and correct.24. These arguments in defence of the above second contention made by Mr. Joshi do not disclose any real defence and are liable to be rejected for the reasons following :(1) The second contention made for the appellants is on an assumption that the notices forreassessment issued under Section 148of the. IndianAct, 1961, were in respect of legal proceedings covered bysubsection (1) of Section446.(2) In connection with its findings regarding the true meaning and effect of the provisions in(1) and (2) of Section 446 the Supreme Court did not find it necessary in the case of A.I.R. 1958 Supreme Court 135 to discuss the connotation of the phrase "legal proceedings". The Supreme Court further found it entirely unnecessary to refer to the provisions in(3) and (4) of Section 446 and other relevant sections such as 442, 530 and 537.(3) The Supreme Court arrived at its findings regarding the true effect of the provisions in(2) and (3) of Section 446 in spite of and we must presume with the full and complete know ledge of, the provisions in(3) and (4) of Section 446 and all relevant sections, including Sections 442, 530 and 537.(4) The main ratio of the decision of the Supreme Court was, as already discussed above that the provisions insubsection (1) of Sectionwere consequential provisions for the reasons discussed in the first part of paragraph 18 of the judgment. For that reason the Supreme Court found that having regard to the special provision conferring jurisdiction on a special Tribunal under Section 41 of the Life Insurance Corporation Act and the general provisions of that Act being in a special Act "will override the provisions of the general Act. viz., Companies Act". The Supreme Court must be held to have held that in the context of a special Act like the Life Insurance Corporation Act the provisions in(1) and (2) of Section 446 were provisions of a general Act and provisions in a special Act and/or special provision like that in Section 41 of the Life Insurance Corporation Act would override the provisions in(1) and (2) of Section 446.25. We are. unable to accept the argument made by Mr. Chagla that provisions in Sections 148 and 142 of theAct, are general provisions, and the scheme of those provisions was liable to be overridden by the provisions in(1) and (2) of Section 446 as being special provisions. The scheme in Sections 148 and 142 of theAct and the scheme thereof for assessment of quantum of tax must be considered in pari materia with the provisions in Section 41 of the Life Insurance Corporation Act. These sections and the above scheme are in a special Act investing jurisdiction in special Tribunals and accordingly such as would "override the provisions of the general Act, viz., the Companies Act.Now it is true that in the case of A.I.R. 1966 Supreme Court 35, in connection with the recovery proceedings envisaged by Sectiontax Act, in the context of the provisions in Sections 228 and 229 of the Companies Act 1913, in consonance with the previous decision of the Federal Court in the case of 14 ITR 248 , the Supreme Court observed; "Sectionis a general provision applicable to all assessees and in all circumstances; Sections 228 and 229 deal with the proof of debts and their payment in liquidation." The Supreme Courts decision was on the footing that the provisions of Section 49E were overriden by the provisions in Sections 228 and 229 of the Indian Companies Act, 1913 Similar provisions in theAct, 1963 and the Companies Act, 1956 will bear the same effect. It however, requires to be noticed that the Scheme of the Companies Act in the Chapter relating to winding up of insolvent Companies as regards unsecured debts is like that in the Provincial and Presidency Towns Insolvency Acts for satisfaction of these debts pari passu, i.e., for distribution of the available assets between the creditors in the proportion of their claims Sections 228 and 229 enact the above Scheme. Provisions like these in respect of Companies inas contained inthe Chapter relating toCompanies in liquidation in the Companies Act would always override, as being special provisions, proceedings for recovery of tax dues and the special provisions like Sectionenacted in the Income tax Act. Even so, the effect of the decision of the Supreme Court in Damjis case is that where claims arise for decision by special Tribunals and/or special Officers likeOfficers in the present case under special jurisdiction, the provisions in(1) and (2) of Section 446 must be considered as general provisions only, The matter is not res integra. We are, therefore, unable to accept Mr. Chaglas contention that the impugned notices were liable to be staved by issuing an order of injunction because the Supreme Court had not changed or restricted the meaning of the phrase "legal proceedings" as construed by the Federal Court and the Supreme Court in the matter of A.I.R. 1946 FC 16 and A.I.R. 1966 Supreme Court 35.Now in connection with these submissions, as already stated to Mr. Chagla by us, we are of the view that the Supreme Court was called upon to ascertain the true effect of the provisions of(1) and (2) of Section 446 the main important point in the case of Damji. It is impossible to imagine that the contents of(l) and (2) of Section 446, on which reliance is sought to be placed by Mr. Chagla, was not present to the mind of the Supreme Court in deciding the case of Damji. The paragraph 18 which we have already quoted above, contains direct reasoning of the Court for the findings made in paragraphs 18 and 19 for arriving at the true construction and effect of the above twoWe are also unable to imagine that the Supreme Court was, whilst dealing with the provisions of these twounaware of the provisions of(3) and (4) of Section 446 and the relevant sections or the scheme of the Companies Act. We, therefore, reject these alternative submissions made by Mr. Chagla.29. The result of the above discussion is that the arguments advanced by Mr. Chagla in reply to the above second contention made on behalf of the appellants fail.Having arrived at the above conclusion on the above second contention made on behalf of the appellants, we do not find it necessary to deal with the first contention made on behalf of the appellants. It is only necessary to refer in a very summary way to the arguments advanced in support of that contention.As already stated in the above discussion in connection with these contentions, there are extremely relevant observations in the decision of the Federal Court in the case of the (A.I.R. 1946 FC 16) and of the Supreme Court in the case of A.I.R. 1966 Supreme Court 35. There are also relevant observations in the case of 59 Bom LR 1259 . We, however, find it unnecessary to discuss these decisions and to arrive at any finding as regards these rival contentions, in view of the fact we have accepted the above second contention made on behalf of the appellants.