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TMI Blog1982 (5) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... the winding-up petition, the company made an application under section 391 of the Act in 1980 suggesting a scheme of arrangement for payment of debts to its creditors. On January 27, 1981, another application was made under section 391(6) and section 443 of the Companies Act against the STO and the Commissioner of Sales Tax on the allegation that for the assessment year 1976-77, the company was liable to pay a sum of Rs. 11,84,054.58 as sales tax and out of this amount a sum of Rs. 2,25,50465 had been paid leaving an unpaid balance of Rs. 9,58,55093, which remains due from the company to the sales tax department. The company further alleged that it apprehended that the sales tax authorities will impose heavy penalties on the company and, therefore, the court should restrain the STO and the Commissioner of Sales Tax from imposing any penalty and from recovering any interest on its defaults. The STO opposed this application. By his order dated February 5, 1981, the learned company judge allowed the application. He stayed the proceedings for the levy of penalty and recovery of interest. At the suggestion of the company he, however, imposed this condition of stay that the company sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the appeal is : Has the company judge power to stay penalty proceedings under section 55 of the Sales Tax Act ? In our opinion, he has none. Section 391(6) says : "The court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the court thinks fit, until the application is finally disposed of". It is this word "proceeding" which has to be interpreted. Will this expression comprehend "sales tax proceedings" ? A company which has run into difficulties can propose a scheme of arrangement to the creditors under section 391 of the Act. Section 391 is applicable both to a going company and a company in winding up. But it must be "a company liable to be wound up" under the Act. A scheme cannot be said to be an alternative mode of liquidation but only an alternative to liquidation. After an application under section 391 proposing a scheme of arrangement to the creditors has been made, the court has power to stay any suit or proceeding against the company on such terms as the court thinks fit, until the application is finally disposed of. The object of conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditioned by the context and circumstances in which they are written or spoken. No word has an absolute meaning, for no word can be denned in vacuo or without reference to some context...........The practical work of the courts is very largely a matter of ascertaining the meaning of words, and their function, therefore, becomes the study of contexts. Since the number and variety of contexts is only limited by the possibilities of human experience, it follows that no rules of interpretation can be regarded as absolute' " (Quoted in C. K. Allen Law in the Making, 6th edition, page 492) Does sub-section (6) give power to the company judge to stay penalty proceedings under the Sales Tax Act ? The learned company judge thought that he had power. With utmost respect we think that he was in error. He has no power to stay proceedings under the Sales Tax Act for the imposition of penalty. It will be surprising if this power can be exercised to defeat the provisions of the Delhi Sales Tax Act, 1975. The company judge cannot stay the operation of a legal enactment such as the Sales Tax Act or the Income-tax Act. He cannot arrest the proceedings started by the STO which he is duty bound t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ITO was not required to obtain leave of the liquidation court under s, 446 of the Act in respect of proceedings for assessment or reassessment of income escaping assessment. The word "legal proceeding" used in sub-section (2) of section 446 was held not to include income-tax proceedings of assessment and reassessment. In our opinion, the principle laid down in that decision fully applies to the present case. This ruling was cited before the learned company judge. He distinguished it on the ground that the scope of section 446 is different from that of section 391. We do not agree with this distinction. In our opinion, the word "proceeding" must be interpreted in the same sense under both the sections in so far as proceedings under the two enactments- the I.T. Act and the Sales Tax Act are concerned. In Damji Valji Shah v. LIC of India [1965] 35 Comp. Cas. 755 (SC); [1965] 3 SCR 665 (SC), it was held that the company court under section 446(2) has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal under section 41 of the Life Insurance Corporation Act. 1956, has exclusive jurisdiction to decide and to determine. It was further held that the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Public Premises Act against Asia Udyog. a company in liquidation. This was clearly a case where the creditor was trying to get at the assets of the company. The premises are a valuable asset of the company. The principle is that if the estate of the company or the effects of the company are sought to be taken away in execution or attachment or distress or by any other process, the company judge can stop those proceedings. The Full Bench held that the leave of the company court was essential before the LIC could launch proceedings for the dispossession of the company from the premises. The same here the recovery proceedings can be stayed by the company judge. But not the penalty proceedings. It would be startling to hold that the powers of the company judge are much wider under section 391 than when acting as a winding up court under section 446(2). In so far as income-tax and sales tax are concerned, the powers are the same. He has no jurisdiction over them. Exclusive jurisdiction vests in the authorities created by the I.T. Act and the Sales Tax Act. The jurisdiction of the company court is ousted except when recovery proceedings are started and those authorities lay the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report" on the accounts of the company will have to be laid before the company judge. How can this be done if the company judge by his own order prevents the STO from imposing the penalty? How can the company judge approve the scheme unless he has before him the "latest financial position"? That is possible only if the STO is allowed to go on with the proceedings under the Sales Tax Act. If under law he finds that penalty has to be imposed, the company judge cannot say to him "Do not levy penalty because the scheme of arrangement will be completely frustrated". This is the argument which appealed to the learned company judge. It does not appeal to us. This will be giving a false picture to the creditors of the "latest financial position" of the company. Nor does section 391 say that you give a rosy picture of the financial position of the company to the creditors because the company has put forward a scheme of arrangement before the creditors. A complete, true and accurate picture has to be put forth. This is what is meant by the expression "latest financial position" of the company. There can be no true and accurate picture of the liabilities of the company unless penalty proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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