1950 (12) TMI 19 - HC - Companies Law

Issues Involved:
1. Entitlement to restrain the respondents from realizing their claims by execution and attachment.
2. Preferential payment of income-tax and sales tax claims.
3. Allegations of insolvency and delay in liquidation proceedings.
4. Rights and entitlements of the Union of India and the State of West Bengal under the Indian Companies Act.

Detailed Analysis:

1. Entitlement to Restrain Respondents from Realizing Claims by Execution and Attachment:
The petitioners, liquidators of the company, sought an order to stay all attachment and certificate proceedings initiated for the realization of income-tax and sales tax. The court debated whether the petitioners are entitled to restrain the respondents from realizing their claims by execution and attachment. The court referenced Section 216 of the Indian Companies Act, which allows the liquidator to apply for an order setting aside any attachment, distress, or execution put into force against the estate or effects of the company after the commencement of the winding up. The court noted that it is the general practice to stay execution proceedings against a company in voluntary liquidation to ensure the assets are distributed among creditors pari passu.

2. Preferential Payment of Income-Tax and Sales Tax Claims:
The Union of India and the State of West Bengal claimed large sums for income-tax and sales tax, respectively. The court examined whether these claims should be given preferential treatment. The petitioners contended that no income-tax is payable for the year 1943 and that the Union of India is not entitled to preferential payment for income-tax assessed after the company went into voluntary liquidation. The court noted that the Union of India had not established its claim to rank as a preferential creditor for any definite sum of money and decided that there were no exceptional circumstances to allow the Union of India to proceed with execution proceedings. Regarding the State of West Bengal, the court acknowledged that the State is a preferential creditor for the sum of Rs. 4,141-9-6 for sales tax assessed before the company went into voluntary liquidation. The court restrained the State from realizing any amount over this sum by execution.

3. Allegations of Insolvency and Delay in Liquidation Proceedings:
The respondents argued that the declaration of solvency was not honest and that the company was insolvent. The petitioners countered that the income-tax assessment was arbitrary and that the real amount payable was much less than demanded. The court found it too early to determine the outcome of pending appeals in income-tax proceedings and was not satisfied that there had been any false statement in the declaration of solvency. The court also addressed the alleged delay in liquidation proceedings, noting that the petitioners had undertaken necessary completions and that there was no extraordinary delay.

4. Rights and Entitlements of the Union of India and the State of West Bengal under the Indian Companies Act:
The court emphasized that both the Union of India and the State of West Bengal are bound by the provisions of the Indian Companies Act and are not entitled to any preferential rights or treatment beyond what is expressly provided in the Act. The court referenced the judgment in Governor-General in Council v. Shiromani Sugar Mills to support this proposition. The court decided not to determine the final rights of the parties or the extent of preferential payment entitlement at this stage, allowing for these issues to be resolved later.

Conclusion:
The court granted an order to stay the execution and attachment proceedings against the company's estate, except for the admitted preferential claim of Rs. 4,141-9-6 by the State of West Bengal. The petitioners were required to pay this amount to the State's attorney, and the respondents were entitled to the costs of the attachment and execution proceedings. The liquidators provided undertakings to make an inventory of the company's assets, allow inspection of the books of account, and not distribute any assets without notice to the respondents.

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