1958 (9) TMI 43 - HC - Companies Law

Issues Involved:
1. Initiation of legal proceedings without court's leave.
2. Contempt of court by the Income-tax Officer.
3. Applicability of section 446 of the Indian Companies Act, 1956.
4. Validity of the notice under section 46(5A) of the Indian Income-tax Act, 1922.
5. Apology and its impact on contempt proceedings.

Issue-wise Detailed Analysis:

1. Initiation of Legal Proceedings Without Court's Leave:
By an order dated August 30, 1957, the Koraput Swadhin Motor Transport Company Limited was ordered to be wound up, and the official liquidator was directed to administer the estate as per the Indian Companies Act, 1956. Under section 446 of the Act, no suit or other legal proceeding shall be commenced against the company without the court's leave. The Income-tax Officer, Titlagarh, initiated proceedings for attachment of the company's assets without obtaining such leave, thereby violating this mandatory provision.

2. Contempt of Court by the Income-tax Officer:
The Income-tax Officer issued a notice under section 46(5A) of the Indian Income-tax Act, 1922, to the official liquidator, which constituted starting a legal proceeding against the liquidator without the court's consent. This act was deemed contempt of court as it interfered with the court's custody of the company's assets. The court cited the case of Braja Bhusan Trigunait v. Sris Chandra Tewari, emphasizing that initiating legal proceedings without court permission is a contempt of court.

3. Applicability of Section 446 of the Indian Companies Act, 1956:
Section 446(1) of the Indian Companies Act, 1956, mandates that no legal proceeding shall be commenced or continued against a company in winding up without the court's leave. This provision applies to all creditors, including the State. The court referenced the case of Governor-General in Council v. Shiromani Sugar Mills Ltd., which held that the Crown is bound by the provisions of the Companies Act and cannot claim priority or preferential treatment in payment of its claims beyond what is expressly conferred by the Act.

4. Validity of the Notice Under Section 46(5A) of the Indian Income-tax Act, 1922:
The notice issued under section 46(5A) was deemed a legal proceeding as it required the official liquidator to pay arrears of income-tax. The court highlighted that such proceedings must be initiated with the court's leave, as they interfere with the administration of the company's assets under liquidation. The court cited the case of Bank of Bihar Ltd. v. Secretary of State, which held that leave of the court is essential even for execution proceedings by the Government.

5. Apology and Its Impact on Contempt Proceedings:
The Income-tax Officer tendered an unconditional apology and withdrew the notice of attachment. The court acknowledged the apology but held that it amounts to a confession of guilt. The court referred to the Supreme Court decision in M. Y. Shareef v. Hon'ble Judges of the Nagpur High Court, stating that an apology is not a defence but evidence of contriteness. Consequently, the Income-tax Officer was held guilty of technical contempt. However, due to the unconditional apology and the officer's bona fide action, no punishment was imposed, and the proceedings were disposed of without any order as to costs.

Conclusion:
The court found the Income-tax Officer guilty of technical contempt for initiating legal proceedings without the court's leave. The officer's unconditional apology was accepted, and no punishment was imposed, but the court emphasized the need for future adherence to legal requirements. The case underscores the importance of obtaining court permission before initiating any legal proceedings against a company under liquidation.

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