1982 (5) TMI 149 - HC - Companies Law

Compromise and arrangements, Winding up Suits stayed on winding-up order, Principles for interpretation of statutes

Summary

Issues Involved:
1. Jurisdiction of the company judge under Section 391(6) of the Companies Act, 1956.
2. Validity of the stay order against the Sales Tax Officer (STO) concerning penalty proceedings.
3. Comparison of Section 391(6) with Section 446 of the Companies Act.
4. Interpretation of the term "proceeding" under Section 391(6).

Detailed Analysis:

1. Jurisdiction of the company judge under Section 391(6) of the Companies Act, 1956:
The primary issue was whether the company judge had the jurisdiction to stay the penalty proceedings initiated by the STO against the company under the Delhi Sales Tax Act, 1975. The court noted that Section 391(6) allows the court to stay the commencement or continuation of any suit or proceeding against the company on such terms as it thinks fit until the application for a scheme of arrangement is finally disposed of. However, the court emphasized that this power does not extend to staying proceedings that are mandated by other statutory enactments, such as the Sales Tax Act.

2. Validity of the stay order against the Sales Tax Officer (STO) concerning penalty proceedings:
The court found that the company judge erred in staying the penalty proceedings under the Sales Tax Act. It was held that the company judge does not have the power to restrain the STO from performing his statutory duties, including the imposition of penalties. The court pointed out that the Sales Tax Act is a complete code with exclusive jurisdiction conferred upon the sales tax authorities, and the company court cannot override this statutory framework.

3. Comparison of Section 391(6) with Section 446 of the Companies Act:
The court compared the provisions of Section 391(6) with those of Section 446 of the Companies Act. It was held that the word "proceeding" in Section 391(6) must be interpreted similarly to "legal proceeding" in Section 446. The court cited the Supreme Court's ruling in S. V. Kondaskar v. V. M. Deshpande, where it was held that income-tax proceedings are outside the purview of Section 446. Similarly, sales tax proceedings, including penalty imposition, are outside the jurisdiction of the company court under Section 391(6).

4. Interpretation of the term "proceeding" under Section 391(6):
The court emphasized that the term "proceeding" in Section 391(6) must be interpreted in its context. It was held that the Legislature did not intend for the company judge to have the power to stay statutory proceedings such as those under the Sales Tax Act. The court stated that the intention of the Legislature is to protect the assets of the company and ensure pari passu distribution among creditors, but not to interfere with statutory duties of tax authorities.

Conclusion:
The court concluded that the company judge had no jurisdiction to stay the penalty proceedings under the Sales Tax Act. The appeal was allowed, and the stay order concerning the penalty proceedings was discharged. The rest of the order, including the stay on the recovery of interest, was not challenged and remained unaffected. The parties were left to bear their own costs.