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1967 (9) TMI 137
Issues Involved:
1. Nature of the contract (works contract vs. sale of goods)
2. Entitlement to deduction of transport charges
Issue-Wise Detailed Analysis:
1. Nature of the Contract (Works Contract vs. Sale of Goods):
The primary issue was whether the arrangement between the assessee and the Neyveli Lignite Corporation constituted a works contract or a sale of goods. The assessee argued that the contract was for the manufacture and supply of bricks, implying a works contract, and thus, the entire turnover should not be liable to sales tax. The contract detailed that the bricks were to be manufactured using clay provided by the Corporation, under its supervision, and delivered at specified sites. The rate was Rs. 24 per 1,000 bricks at the kiln site and Rs. 39 per 1,000 bricks if transported to the Neyveli Township. The Tribunal initially held that the arrangement was a sale of goods, not a works contract, influenced by the Supreme Court decision in Chandra Bhan Gosain v. State of Orissa. However, the High Court disagreed, noting that the facts of the present case were distinct. The contract's terms indicated that the bricks remained the Corporation's property throughout the manufacturing process, distinguishing it from the Chandra Bhan Gosain case. The High Court concluded that the contract was indeed a works contract and not a sale, thus exempting the entire turnover from sales tax.
2. Entitlement to Deduction of Transport Charges:
The secondary issue concerned whether the assessee was entitled to deduct transport charges from the turnover. The assessee claimed that Rs. 15 per 1,000 bricks was for transport, which should be exempt from sales tax. The Tribunal rejected this claim, as the transport charges were not separately specified and charged in the bills, as required by rule 6(c) of the Madras General Sales Tax Rules. The High Court upheld this decision, emphasizing that transport charges must be distinctly itemized in the bills to qualify for deduction. Since the assessee did not meet this requirement, the plea for exemption of transport charges was rightly denied.
Additional Cases:
For T.C. No. 165 of 1964 and T.C. No. 207 of 1964, the High Court noted that the assessees did not produce relevant contracts. The supplied bricks were not under the same contract as T.C. No. 206 of 1964. The available certificate indicated a different contract, requiring the contractor to find their own clay and supply bricks at a specified rate. This contract did not exhibit the same characteristics as the one in T.C. No. 206 of 1964, leading the High Court to conclude that these were not works contracts. The plea for exemption of transport charges was also rejected for similar reasons as in T.C. No. 206 of 1964.
Conclusion:
The High Court allowed the revision petition for T.C. No. 206 of 1964, recognizing the contract as a works contract and exempting the turnover from sales tax. However, the claims for transport charge deductions were denied due to non-compliance with the specified billing requirements. The revision petitions for T.C. No. 165 of 1964 and T.C. No. 207 of 1964 were dismissed, as the contracts did not qualify as works contracts and the transport charge deductions were not substantiated. No costs were awarded in any of the cases.
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1967 (9) TMI 136
Issues Involved:
1. Priority of sales tax claims under Section 530(1)(a) of the Companies Act, 1956.
2. Validity of assessment orders passed without notice to the Official Liquidator.
Issue-wise Detailed Analysis:
1. Priority of Sales Tax Claims under Section 530(1)(a) of the Companies Act, 1956:
The appellant, Sales Tax Officer, claimed priority for the arrears of sales tax under Section 530(1)(a) of the Companies Act, 1956. The section stipulates that in winding up, all revenues, taxes, cesses, and rates due to the Central or State Government or local authority, which became due and payable within the twelve months preceding the winding up order, shall be paid in priority to other debts. The relevant date in this case was the 7th of August, 1963.
The court found that the sales tax for the assessment years 1954-55 to 1958-59 could not have become due or payable within the twelve months preceding the winding up order. The court emphasized that Section 530(1)(a) envisages taxes that are currently due and payable at the time of the winding up order, not arrears of the same. Both conditions-due and payable-must co-exist for priority to be claimed. The court cited decisions in Recols (India) Ltd., In re [1953] 4 S.T.C. 271 and The Income-tax Officer, Company Circle v. The Official Liquidator and Others [1967] 37 Comp. Cas. 114 to support this view. Consequently, the first part of the appellant's contention was rejected.
The appellant's second argument was that the sales tax should be given priority as it was ordered to be recovered as arrears of land revenue within the twelve months preceding the winding up order. The court clarified that the words "recoverable" and "payable" have different connotations. The term "revenues" in Section 530(1)(a) refers to revenues that have become due and payable as revenues within the specified period, not revenues recoverable as arrears of land revenue. Thus, the second part of the appellant's contention was also rejected.
2. Validity of Assessment Orders Passed Without Notice to the Official Liquidator:
The Official Liquidator rejected the claims for the assessment year 1959-60 under the U.P. Sales Tax Act and the Central Act, as the assessment orders were passed ex parte without notice to him and the demand notices were not served upon him. The Official Liquidator argued that the assessment proceedings were void ab initio as the Sales Tax Officer did not seek the court's leave to commence these proceedings and that the orders made behind his back were not binding.
The court found that Section 17 of the Sales Tax Act precludes challenging the legality and correctness of an assessment order except as provided in the Act. Since the Official Liquidator did not challenge the assessment orders under the Act, they remained final. The court noted that the Official Liquidator could have filed appeals against the assessment orders and sought condonation of delay under Section 9(6) of the Sales Tax Act, which extends the benefit of Section 5 of the Indian Limitation Act to such appeals. The court held that the Official Liquidator was in error in rejecting the claims on the grounds mentioned.
The court distinguished the case from Union of India v. Seth Spinning Mills Ltd. (in liquidation) [1962] 32 Comp. Cas. 801, which did not involve Section 17 of the U.P. Sales Tax Act or analogous provisions. The court concluded that the appellant's claims under the assessment orders dated the 28th of March, 1964, and the 10th of August, 1964, for the assessment year 1959-60 were wrongly rejected by the Official Liquidator. However, these taxes were not entitled to priority as they were neither due nor payable within the twelve months preceding the winding up order.
Conclusion:
The appeal was allowed in part. The court set aside the decision of the Official Liquidator concerning the sales tax under the assessment orders dated the 28th of March, 1964, and the 10th of August, 1964, for the assessment year 1959-60. The Official Liquidator was directed to entertain the appellant's claim regarding these orders and consider it according to law. The appeal concerning priority was dismissed. The judgment was to be supplied to the Official Liquidator free of charge.
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1967 (9) TMI 135
Issues Involved:
1. Validity of the assessment order issued against a deceased person.
2. Legal standing of the petitioners to challenge the assessment order.
3. Applicability of Section 33-B of the Madhya Pradesh General Sales Tax Act, 1958.
4. Interpretation of notices and assessment orders issued under the Act.
Issue-wise Detailed Analysis:
1. Validity of the assessment order issued against a deceased person:
The court addressed the issue of the validity of an assessment order issued against Bhimsen Sachdeva, who had passed away before the notice was served. The court noted that the proceedings were initiated against "Bhimsen Sachdeva" and the notice was also issued in his name. The assessment order and demand notice were similarly directed at Bhimsen Sachdeva, not at his legal representatives. The court held, "the assessment order made against a dead person was, on the face of it, void and was liable to be quashed." It was emphasized that the assessment against a deceased individual is a nullity.
2. Legal standing of the petitioners to challenge the assessment order:
The petitioners, who are the sons of Bhimsen Sachdeva, protested against the service of the notice and the subsequent proceedings. The court observed that the petitioners had no right to appeal against an order not made against them. However, they filed the petition due to apprehensions of coercive action. The court ultimately concluded, "the impugned order is not binding on the petitioners and is a nullity," implying that the petitioners were not adversely affected by the order, thus questioning their locus standi.
3. Applicability of Section 33-B of the Madhya Pradesh General Sales Tax Act, 1958:
Section 33-B of the Act was discussed, which states that upon the death of a dealer, his legal representative shall be deemed to be the dealer for the purposes of the Act. The court clarified that the legal representative must be proceeded against as a dealer, and the notices and assessment orders must be issued to them. The court stated, "the deeming provision in section 33-B cannot be relied upon for holding that though the notices are issued in the name of a dead person and the assessment is also made against a dead person, the assessment shall be deemed to be the assessment of the legal representatives."
4. Interpretation of notices and assessment orders issued under the Act:
The court examined the notices and assessment orders issued under the Act. It was highlighted that the notices were incorrectly issued in the name of the deceased Bhimsen Sachdeva. The court referenced the case of Sk. Abdul Kadar v. Income-tax Officer, stating, "The notice under section 34 is the foundation of jurisdiction, and that notice has to be correct. When a notice is issued to a dead person, the taxing authority cannot catch any living person into whose hands the notice goes and attribute notice to him." The court found that the first respondent continued the proceedings despite the petitioners' protests and issued the assessment order in the name of the deceased, rendering the order invalid.
Conclusion:
The court dismissed the petition, stating that the impugned order was a nullity and not binding on the petitioners. However, the court directed the respondents to pay the costs of the petitioners and refund the outstanding amount of the security deposit. The petitioners' apprehensions were addressed by the court's finding that the order was void and not enforceable against them.
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1967 (9) TMI 134
Whether the provisions of sub-section (3) of section 11A of the C. P. and Berar Sales Tax Act, 1947 contravene Article 14 of the Constitution in so far as they affect proceedings under sub-section (2) of section 11 of the Act?
Held that:- Appeal dismissed. From a plain reading of section 11(2) independently of section 11A(3). Neither section 11(2) nor section 11A(3) is violative of Article 14. A notice under section 11(2) is issued in a pending proceeding, whereas a notice under section 11A(1) initiates a new proceeding. There is a reasonable basis for classification and differential treatment of the notices under sections 11(2) and 11A(1) for the purposes of limitation.
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1967 (9) TMI 132
Whether section 11(4)(a) of the Central Provinces and Berar Sales Tax Act, 1947 is ultra vires Article 14 of the Constitution and consequently the notices impugned in the writ petitions from which these appeals arise are liable to be struck down and the respondents restrained from levying sales tax on the appellants for the period May 1, 1952 to October 31, 1955?
Held that:- Appeal partly allowed. The notices issued on July 8, 1959, under section 11(4) are valid in respect of the entire period from Ist November, 1952 to 31st October, 1955. As regards the alternative contention of the respondent that the notices issued in 1955 validly initiated proceedings under section 11(4) for the period from 1st February, 1953 to 31st October, 1955, we are glad to find that the majority has accepted this contention. The irregularities, if any, in the notices do not invalidate them. However, for the reasons already mentioned, we are of opinion that the impugned notices issued on July 8, 1959, are valid.
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1967 (9) TMI 121
Whether the purchases by or on behalf of the petitioners from the cane growers in their respective factory zones were made under agreements of purchase and sale?
Held that:- Appeal dismissed. The establishment of new factories and the expansion of the existing factories need encouragement and incentives. The exemption in favour of new and expanding factories is based on legitimate legislative policy. The question whether the exemption should be granted to any factory, and if so, for what period and the question whether any factory has substantially expanded and if so, the extent of such expansion have to be decided with reference to the facts of each individual case. Obviously, it is not possible for the State Legislature to examine the merits of individual cases and the function was properly delegated to the State Government. The Legislature was not obliged to prescribe a more rigid standard for the guidance of the Government. We hold that section 21 does not violate Article 14.
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1967 (9) TMI 118
Constitutional validity of section 12A(4) of the Bombay Sales Tax Act, 1946 - Held that:- Appeal allowed. The order of the High Court is set aside and a writ of mandamus will be issued to the respondents to comply with the refund orders set out in the petition filed before the High Court and to refrain from proceeding against the appellants under section 12A(4).
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1967 (9) TMI 116
Whether having made the deposit even before the appeal was filed and well within the period of limitation, the assessee could be deprived of his right of appeal under section 9 of the Uttar Pradesh Sales Tax Act, 1948?
Held that:- Appeal allowed. In the present case when the Assistant Commissioner took up the appeal for consideration, satisfactory proof was available in the shape of a certificate which even today is not denied. In our opinion the Assistant Commissioner was wrong in declining to consider the appeal in the presence of such uncontestable proof.
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1967 (9) TMI 115
Whether the transactions with which are concerned herein this case are sales?
Whether there was any material to support the conclusion of the Sales Tax Appellate Tribunal, the final fact-finding authority, that the goods were delivered in the Madras State for consumption in that State?
Held that:- Appeal dismissed. The contentions of the appellant that the findings of the Tribunal about the quantum of the turnover were not based on any evidence, or that those findings were arrived at in violation of the principles of natural Justice or that the decision of the High Court is perverse, are wholly untenable contentions. At the time of the hearing no reasons were advanced in support of those contentions. Hence those contentions do not merit any detailed examination.
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1967 (9) TMI 94
Issues:
- Appeal under section 202 of the Indian Companies Act, 1913 against the order of the company judge in a proceeding under section 235 of that Act.
- Determination of prima facie case against directors for misfeasance, malfeasance, breach of trust, etc.
- Preliminary objection to the maintainability of the appeal based on the nature of the order affecting rights and liabilities of the parties.
- Interpretation of section 235(1) of the Indian Companies Act, 1913 regarding the jurisdiction of the company judge.
Analysis:
The judgment pertains to an appeal under section 202 of the Indian Companies Act, 1913 against the order of the company judge in a proceeding under section 235 of that Act. The official liquidator initiated the proceeding against several directors of a company under liquidation for alleged misfeasance, malfeasance, breach of trust, etc. The company judge, after a preliminary stage, decided not to proceed against two directors unless a prima facie case was established. The judge's order released the two directors from the enquiry at that stage, while continuing the proceeding against other directors mentioned in the original application. The issue raised was the maintainability of the appeal, contending that the order did not finally affect the rights and liabilities of the parties as per the Supreme Court's interpretation in a previous case. The argument was that procedural orders not impacting rights and liabilities are not appealable under section 202.
The judgment delves into the interpretation of section 235(1) of the Indian Companies Act, 1913, which outlines the court's jurisdiction in cases of misapplication of company funds by directors. The section mandates that the court may examine the conduct of directors if a prima facie case is established. The judgment emphasizes that an order affecting rights and liabilities, such as directing directors to repay or restore company funds, would be final and appealable. However, in cases where the company judge decides at the initial stage that there is no prima facie case against certain directors and drops the proceeding against them while continuing against others, the order does not conclusively determine rights and liabilities. The judge's discretion to decide preliminary matters, as acknowledged by both parties' counsels, does not render such orders appealable unless they definitively impact the parties' rights.
Ultimately, the court held that the appeal was incompetent as the order in question did not conclusively affect the rights and liabilities of the parties. The judgment underscores that the company judge's decision to drop the proceeding against two directors at a preliminary stage does not preclude a future reconsideration based on additional evidence. Therefore, the appeal was dismissed, and no costs were awarded.
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1967 (9) TMI 86
Issues:
- Petition for exoneration of default under section 220 of the Companies Act, 1956.
- Extension of time granted by the court for compliance with provisions of section 220.
- Competence of the court to extend time fixed under section 633.
- Interpretation of rules 7 and 9 of the Companies (Court) Rules, 1959.
Analysis:
The judgment pertains to a petition filed by the directors of a company seeking exoneration of a default under section 220 of the Companies Act, 1956. The petitioners were unable to comply with the provision due to the seizure of the company's books by the police, leading to their prosecution and conviction. The initial petition was disposed of by Khanna J., who allowed three months for compliance. The subsequent petition sought a further extension of time, citing various grounds such as delay in book return, personal bereavement, and operational challenges within the company. The Registrar pointed out deficiencies in the filing of the balance-sheet and profit and loss account, which were subsequently rectified. The petitioners justified their request for an extension based on the mentioned grounds.
Regarding the competence of the court to extend the time fixed under section 633, a key contention arose. The Registrar argued that rules 7 and 9 of the Companies (Court) Rules, 1959, did not confer jurisdiction on the court to extend the time granted. However, the petitioners relied on these rules and also hinted at the court's inherent power to extend time. The court analyzed the relevant provisions, highlighting the powers granted under section 633 to relieve officers of the company from liability on defaults. Rule 7 of the Companies (Court) Rules empowers the court to extend or abridge time for acts or proceedings, while Rule 9 saves the court's inherent powers. The court delved into the legislative framework and the scope of rule-making authority under section 643, emphasizing the need for a consistent interpretation of the rules in light of statutory provisions.
Ultimately, the court found that section 633 itself bestowed powers upon the High Court to extend the time fixed for redeeming defaults. Drawing parallels to a historical legal precedent, the court reasoned that fresh orders could be made regarding time extensions, aligning with the spirit of the law. The judgment concluded by granting the extension of time by another three months from the initial deadline, without imposing costs on either party. The decision underscored the court's authority to grant relief against defaults and emphasized the overarching objective of facilitating compliance with statutory requirements within the corporate framework.
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1967 (9) TMI 85
Issues:
1. Maintainability of the petition for winding-up based on the petitioner's status as a contributory and member of the company.
2. Interpretation of the Companies Act regarding the eligibility of a legal representative to file a winding-up petition.
3. Examination of the petitioner's rights and locus standi in the absence of her name in the register of members.
4. Consideration of the application for winding-up in light of the company's articles and the petitioner's failure to request share transfer.
Analysis:
The petitioner filed a petition under sections 433(b) and (f) and 439(1)(c) of the Companies Act seeking the winding-up of the company, Mannargudi Transports (Private) Limited, claiming to be a contributory and member. The petitioner was originally allotted 125 shares, which were later transferred to the 2nd respondent. The main objection raised by the respondents was the petitioner's lack of locus standi due to her name not appearing in the register of members, rendering the application potentially not maintainable. The court noted that a petitioner must be a member to present a winding-up petition, and the expressions "member," "shareholder," and "holder of shares" are interchangeable terms in companies with share capital.
The court examined the concept of legal representatives presenting a winding-up petition and the necessity for a clear reckoning of the petitioner's shares and interest in the deceased member's shareholding. It emphasized the need for a succession certificate and a specific interest in the shares before filing such a petition. The court further analyzed the mandates under section 439(4) regarding the time limit for filing a petition, highlighting a potential discriminatory treatment between members and legal representatives. It suggested a realignment of the section to avoid such distinctions and ensure uniform application of the time requirement.
Regarding the petitioner's rights and locus standi, the court emphasized the importance of the petitioner's name appearing in the register of members. It noted that the petitioner's expectation of being recognized as a shareholder was insufficient without a formal record. The court highlighted the company's articles, specifically articles 15 and 19, which provided the board with discretion to reject share transfer applications and demand sales to existing shareholders. The absence of any application for share transfer by the petitioner further weakened the maintainability of the petition.
Ultimately, the court accepted the respondents' preliminary objection that the petition was not maintainable due to the petitioner's lack of legal capacity as a registered member. It emphasized the need for a rectification of the register if the petitioner's claim was unlawfully refused. The court dismissed the application without costs, considering the internal dissensions within the company and the familial nature of its ownership.
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1967 (9) TMI 82
Issues Involved:
1. Notice to Central Government under Section 391.
2. Claim by Handloom and Small Users Art Silk Association Limited.
3. Separate application under Section 391 for varying preference rights.
4. Scrutiny of Beardsell's acts post-amalgamation.
5. Compatibility of Mettur's objects with Beardsell's businesses.
6. Increase in Mettur's authorized capital.
Issue-wise Detailed Analysis:
1. Notice to Central Government under Section 391:
The Central Government contended that notice should have been given before the request for holding meetings under Section 391. The court held that such a notice is not necessary or contemplated under the scheme of the Act. Section 394A requires notice only at the stage when the application under Section 394 is made for sanctioning the scheme. The court referred to the Calcutta High Court's decision in Bangeswari Cotton Mills Ltd., agreeing that notice to the Central Government is not required at the initial stage before the court orders a meeting under Section 391.
2. Claim by Handloom and Small Users Art Silk Association Limited:
The Central Government argued that the amalgamation cannot proceed until Beardsell settles a claim of Rs. 14,250 with the association. The court found this objection baseless, stating that if every creditor had to be heard before sanctioning an amalgamation, it would defeat the purpose of Section 394. The transferee company (Mettur) is statutorily obliged to respect all liabilities of the transferor company (Beardsell), making this objection irrelevant.
3. Separate application under Section 391 for varying preference rights:
The Government argued that a separate application should have been made when preference rights were varied. The court noted that the preference shareholders had voluntarily agreed to give up their rights and rank pari passu with ordinary shareholders. This was within the doctrine of indoor management, and the procedure under Section 106 of the Companies Act had been complied with. The court had already dispensed with the meeting of preference shareholders in Company Application No. 74 of 1967, making this objection moot.
4. Scrutiny of Beardsell's acts post-amalgamation:
The Government speculated that Beardsell's acts as managing agents might not be scrutinized post-amalgamation. The court dismissed this as speculative, noting the absence of any adverse findings by auditors and the lack of evidence supporting such a claim. The court found no reason to hold up the amalgamation on these speculative grounds.
5. Compatibility of Mettur's objects with Beardsell's businesses:
The Government contended that Mettur's objects did not cover all of Beardsell's businesses. The court rejected this, stating that the essence of amalgamation is to facilitate reconstruction and that the objects of both companies need not be identical. The court emphasized that the primary objective is the mutual benefit of both companies.
6. Increase in Mettur's authorized capital:
The Government claimed that Mettur had not increased its authorized capital. The court found this objection factually incorrect, as Mettur had increased its share capital, approved at its annual meeting. The court cited a resolution passed at Mettur's annual general meeting, confirming the increase in authorized capital and the necessary amendments to the memorandum and articles of association.
Conclusion:
The court found that the objections raised by the Central Government were without merit. The amalgamation was deemed beneficial for both companies and their shareholders. The Ministry of Finance had no objection to the amalgamation, and the scheme was unanimously approved by the shareholders of both companies. The court sanctioned the amalgamation under Section 394 of the Companies Act, 1956, emphasizing that such decisions, if unanimously made by the shareholders, should not be lightly interfered with by the court.
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1967 (9) TMI 81
Issues Involved:
1. Confirmation of alteration of the memorandum of association.
2. Validity of reasons for transferring the registered office.
3. State's right to oppose the application.
4. Impact on the State's economy and revenue.
5. Interests of the public.
Issue-Wise Detailed Analysis:
1. Confirmation of Alteration of the Memorandum of Association:
The appeal challenges the dismissal of an application under section 17 of the Companies Act for confirmation of alteration of the memorandum of association by special resolutions to transfer the registered office from West Bengal to Maharashtra. The court ultimately confirmed the alteration, stating that the reasons provided by the shareholders were cogent and commercially sound.
2. Validity of Reasons for Transferring the Registered Office:
The petition listed several reasons for the transfer, including:
- The head office is in Bombay, and aligning the registered office would enhance administrative efficiency.
- Proximity to the registered offices of foreign film companies in Bombay would aid in business competition.
- Better business expansion opportunities in Bombay due to easier contact with foreign film industry visitors.
- The transfer would benefit the shareholders.
The court found these reasons sufficient, noting that the shareholders' decision, expressed through special resolutions, was made after mature deliberation. The court emphasized that not every reason needs to be justified by evidence, as future business operations are inherently speculative.
3. State's Right to Oppose the Application:
The State opposed the application, arguing insufficient cause for the transfer. However, the court held that the State does not have a statutory right to control the company's affairs or to challenge the shareholders' reasons for the transfer. The court stated, "It is for the members of the company and not for the State to decide whether the registered office of the company should be transferred."
4. Impact on the State's Economy and Revenue:
The State argued that the transfer would negatively impact its economy and revenue. The court dismissed this concern, stating:
- The location of the registered office does not significantly affect employment opportunities.
- Sales tax and income tax revenues are not dependent on the location of the registered office.
- The court found the State's concerns speculative and not a relevant consideration.
The court also noted that the country's economic interests as a whole should be considered, not just those of a particular State.
5. Interests of the Public:
The court considered whether the interests of the public should factor into the decision. It referred to precedents indicating that the public interest to be protected involves potential future shareholders and creditors, not the revenue interests of the State. The court concluded that the interests of the public, as interpreted in relevant case law, do not include the economic interests of the State.
Conclusion:
The court set aside the learned judge's order and confirmed the alteration of the memorandum of association. The appellant was ordered to pay the costs of the Registrar of Joint Stock Companies, with no additional order as to costs. The judgment underscores the autonomy of shareholders in making business decisions and limits the State's role in opposing such corporate decisions based on speculative economic impacts.
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1967 (9) TMI 79
Issues Involved:
1. Whether the contract is onerous.
2. Whether the applicant is precluded from filing the application for leave to disclaim the contract.
3. Whether the Madras Industrial Investment Corporation is a necessary party to the application.
4. Maintainability of the application under Section 535(4) of the Companies Act, 1956.
5. Merits of the applicant's case regarding the disclaimer of the contract.
Issue-wise Detailed Analysis:
1. Whether the contract is onerous:
The applicant, the official liquidator of Raka Corporation Private Ltd., sought to disclaim a contract concerning the allotment of 11,513 equity shares in Raka Chemicals and Food Products Limited, considering it an onerous contract. The applicant argued that the investment in these shares was of no benefit to the company, its creditors, or shareholders, as the shares were not quoted on the stock exchange, the financial position of the respondent was unsatisfactory, and there was no possibility of any return from the investment. The court found that the contract was indeed onerous and burdensome, and thus, leave should be granted to the applicant to disclaim the same.
2. Whether the applicant is precluded from filing the application for leave to disclaim the contract:
The respondents contended that the application for disclaimer was not maintainable because the applicant had requested an extension of time for payment of the first call, thereby adopting the contract. However, the court noted that the applicant's letters (exhibits R-1 and R-2) did not amount to a formal application under Section 535(4) requiring the liquidator to decide whether to disclaim the contract. The court held that the liquidator's request for time to pay the call money did not preclude him from applying to the court for leave to disclaim the contract under Section 535(1).
3. Whether the Madras Industrial Investment Corporation is a necessary party to the application:
The respondents argued that the Madras Industrial Investment Corporation was a necessary party because the allotment of shares was connected to their attempt to secure a loan from the Corporation. The court found no evidence that the Corporation had sanctioned a loan based on the company's representations or any acts on its part. The court concluded that the Corporation was not a necessary party or a person interested within the meaning of Section 535(3) of the Companies Act.
4. Maintainability of the application under Section 535(4) of the Companies Act, 1956:
The respondents relied on Section 535(4) to argue that the liquidator was not entitled to disclaim the contract. However, the court noted that the non-obstante clause in Section 535(1) allowed the liquidator to disclaim an unprofitable or onerous contract even if he had done anything in pursuance of the contract. The court held that Section 535(1) overrides Section 535(4), enabling the liquidator to apply for disclaimer if the contract is found to be onerous and not beneficial to the creditors.
5. Merits of the applicant's case regarding the disclaimer of the contract:
The applicant argued that the contract was not beneficial to the company, its creditors, or shareholders, and the future liability under the contract was burdensome. The respondents did not provide sufficient evidence to disprove the liquidator's statements. The court emphasized the importance of safeguarding the interests of the body of creditors and shareholders and found that the contract was indeed onerous and burdensome. Consequently, the court granted leave to the applicant to disclaim the contract by September 30, 1967.
Conclusion:
The court concluded that the contract was onerous, the application for disclaimer was maintainable, the Madras Industrial Investment Corporation was not a necessary party, and the liquidator was entitled to disclaim the contract under Section 535(1) of the Companies Act, 1956. The court granted leave to the applicant to disclaim the contract by September 30, 1967.
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1967 (9) TMI 78
Issues Involved:
1. Priority of sales tax claims under Section 530(1)(a) of the Companies Act, 1956.
2. Validity of assessment orders made without notice to the official liquidator.
Detailed Analysis:
Issue 1: Priority of Sales Tax Claims under Section 530(1)(a) of the Companies Act, 1956
The Sales Tax Officer, Kanpur, filed a claim for Rs. 22,468.88 against M/s. Northern India Oil Industries, which was under liquidation. The official liquidator accepted the claim for the first six items but refused to give them priority under Section 530(1) of the Companies Act. The last two items were rejected entirely because the assessment orders were made without notice to the official liquidator and the demand notices were not served on him.
The appellant contended that the sales tax should be given priority under Section 530(1)(a) of the Companies Act. This section states that in a winding-up, all revenues, taxes, cesses, and rates due from the company to the Central or State Government or a local authority, which became due and payable within the twelve months before the winding-up order, shall be paid in priority to all other debts.
The court held that the sales tax for the assessment years 1954-55 to 1958-59 could not be considered as due and payable within the twelve months preceding the winding-up order dated 7th August 1963. The court emphasized that both conditions-becoming due and becoming payable-must coexist within the relevant period for the priority to be claimed. Therefore, the court rejected the appellant's contention that the sales tax was entitled to priority.
The appellant's argument that the sales tax should be treated as land revenue and thus entitled to priority was also rejected. The court clarified that the terms "recoverable" and "payable" have different meanings. The word "revenues" in Section 530(1)(a) refers to revenues due and payable as revenues, not those recoverable as arrears of land revenue.
Issue 2: Validity of Assessment Orders Made Without Notice to the Official Liquidator
The appellant also challenged the official liquidator's rejection of the sales tax claims for the assessment year 1959-60 under the U.P. Sales Tax Act and the Central Sales Tax Act. These assessment orders were passed ex parte on 28th March 1964 and 10th August 1964, respectively, without notice to the official liquidator and without serving demand notices on him.
The official liquidator rejected these claims on the grounds that the Sales Tax Officer did not seek the court's leave to commence the assessment proceedings and that the assessment orders were made behind his back. The court found these grounds unjustified. Section 17 of the Sales Tax Act stipulates that the legality and correctness of an assessment order can only be challenged as provided in that Act. Since the official liquidator did not take steps to challenge the assessment orders under the Act, the court held that the orders remained final and binding.
The court noted that the official liquidator could have filed appeals against the assessment orders and sought condonation of delay under Section 9(6) of the Sales Tax Act, which extends the benefit of Section 5 of the Indian Limitation Act to such appeals. The court concluded that the appellant's claim under the assessment orders dated 28th March 1964 and 10th August 1964 for the assessment year 1959-60 was wrongly rejected by the official liquidator, although these taxes were not entitled to priority as they were neither due nor payable within the twelve months preceding the winding-up order.
Conclusion
The court allowed the appeal in part, setting aside the official liquidator's decision concerning the sales taxes under the assessment orders dated 28th March 1964 and 10th August 1964 for the assessment year 1959-60. The official liquidator was directed to entertain the appellant's claim and consider it in accordance with the law. The appeal regarding priority was dismissed. The court also provided the official liquidator with the right to approach the sales tax authority for a fresh consideration of the assessments if advised.
A copy of the judgment was ordered to be supplied to the official liquidator free of charge.
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1967 (9) TMI 76
The High Court of Madras set aside the lower court's order directing a third party to produce documents related to an incorporated company in a civil suit. The court ruled that Order XI, rule 14 of the Civil Procedure Code cannot be used to compel production from a non-party. The judge exceeded jurisdiction in issuing the order. The Civil Revision Petition was allowed with no costs.
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1967 (9) TMI 74
Issues:
Winding-up petition under section 439 of the Companies Act due to non-payment of dues. Interpretation of section 18E of the Industries (Development and Regulation) Act regarding the maintainability of the winding-up petition after the Central Government takes over the management of the company.
Analysis:
The petition sought the winding-up of a company for non-payment of dues exceeding one lakh rupees, following the statutory period under section 434(1)(a) of the Companies Act. However, a preliminary objection was raised by the company, which had come under the management of the Central Government. The objection was based on section 18E of the Industries (Development and Regulation) Act, which prohibits winding-up proceedings without the consent of the Central Government after it takes over the management of an industrial undertaking. The company argued that the winding-up petition was not maintainable without the Central Government's consent, as per section 18E(c) of the Act.
The court analyzed the interpretation of section 18E(c) and concluded that the word "proceeding" encompassed all stages of the winding-up process, not just the filing of the petition. The court held that Parliament intended to bar all winding-up proceedings without the Central Government's consent once it took over the management of the company. The judgment emphasized the legislative intent to allow the Central Government the opportunity to rehabilitate industrial undertakings and prevent winding-up unless absolutely necessary.
Drawing parallels with a Supreme Court case, the court highlighted that the word "proceeding" in section 18E(c) required consent for the entire duration of the winding-up process, not just the initiation. The court rejected arguments that the consent was only needed for the filing of the petition, emphasizing that the singular usage of "proceeding" in the provision did not limit its scope to a single stage of the process. Additionally, the court dismissed the contention that the petitioner had a vested right to pursue the petition without the Central Government's consent, as section 18E(c) was deemed retrospective in effect.
Ultimately, the court held that the winding-up petition could not proceed without the Central Government's consent post its takeover of the company's management. As the petitioner had not obtained the required consent, the court dismissed the petition with costs.
This judgment clarifies the application of section 18E of the Industries (Development and Regulation) Act in relation to winding-up proceedings post the Central Government's assumption of management control, underscoring the necessity of obtaining consent for such proceedings to proceed.
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1967 (9) TMI 72
Issues: Creditors' petition for winding up of a company based on inability to pay debts, commercial insolvency, appointment of provisional liquidator, and prosecution of pending appeal.
Creditors' Petition for Winding Up:
The judgment pertains to a creditors' petition seeking a winding-up order for a company named Chitale Agricultural Products Ltd under the Companies Act. The petition is grounded on the company's inability to pay its debts, as per sections 434(1)(a) and 434(1)(c) of the Act. The petitioner has claimed a specific sum, which remains unpaid by the company, making a strong case for a winding-up order solely based on this default.
Commercial Insolvency:
The petitioner further argues that the company is commercially insolvent, emphasizing the financial position of the company. The company's balance sheet reveals significant assets invested in a subsidiary company that is yet to commence production. In contrast, the company carries substantial liabilities, indicating commercial insolvency. The company's admission of its insolvency in an affidavit supports the petitioner's claim for a winding-up order on the grounds of commercial insolvency.
Appointment of Provisional Liquidator and Appeal Prosecution:
While some creditors advocate for the appointment of a provisional liquidator to safeguard company assets and facilitate the prosecution of a pending appeal in the Supreme Court, the judgment dismisses this suggestion. The court finds no reason to deviate from issuing a winding-up order, given the compelling case presented by the petitioner. The liquidator, post the winding-up order, is granted the authority to prosecute the pending appeal if suitable arrangements are made by the creditors to fund the process.
Cost Allocation and Advertisement of Winding-Up Order:
Regarding costs, the judgment stipulates that the costs of the petitioner and the company will be covered from the company's assets separately. Shareholders and other creditors appearing in the petition will also be entitled to costs from the company's assets. The winding-up order is directed to be advertised in specified newspapers and published in the official Gazette for public notice.
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1967 (9) TMI 71
The High Court of Bombay held that the confirmation of alteration of objects specified in a company's memorandum is a discretionary order. The court's discretion should be based on the facts of each case, not solely on judicial decisions. In this case of a private company resembling a small family concern, the court sanctioned the alteration of objects specified in the memorandum. The petition was made absolute in terms of prayer (a). (Case citation: 1967 (9) TMI 71 - HIGH COURT OF BOMBAY)
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