Case: Harinagar Sugar Mills Ltd Vs. M. W. Pradhan

1. 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 VII of 1913), Narayanlal Bansilal was the Chairman of the Board of Directors of 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 installment. Though the Company paid a few installment, 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 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. 7 of the C. P. C., 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, S. 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.

Court's reasoning:
4. 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 Receivers 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.5. 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 filed 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 firstcomparison 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 Sackers case, (1888) 22 QBD 179 it was not possible for the receiver to bring an action to recover the debt either at law or in equity, whereas in Macouns case, (1904) 2 KB 700, 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 receivers 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 saidcreditor, 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". Strouds Judicial Dictionary, 3rd Edn., Vol. I; 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 themain 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 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 Additional Collector of Bombay did not do anything in derogation of the provisions of S. 434 (1) (a) of the Indian Companies Act.9. 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 none 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 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., ILR 54 Cal 345  : (AIR 1927 Cal 625  ); Kureshi v. Argus Footwear Ltd., AIR 1931 Rang 306 and W. T. Henleys Telegraph Works Co. Ltd., Calcutta v. Gorakhpur Electric Supply Co. Ltd., Allahabad, AIR 1936 All 840  .But in this case the statutory notice issued by the respondent did not violate any of the requirements of the section. We, therefore, reject thisis said that the Companys case was that the debt was due to four individuals mentioned in the conveyance, namely, the father and his three sons, whereas the Receivers 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 AIR 1936 All 840   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 bona fide dispute between the parities 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 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 theview of the said affidavit it is manifest that the alleged dispute was not bona fide but was only a part of a scheme of collusion between the Company and the karta of the joint family. There are, therefore, no merits in any of the contentions raised by theview is supported by the decisions in Bowes v. Hope Life Insurance and Guarantee Co., (1865) 11 HLC 389; Re, General Company for Promotion of Land Credit, (1870) 5 Ch A 363 (380) and Re, National Permanent Building Society, (1869) 5 Ch A 309.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.