P L D 1981 Lahore 322 (PLP)

This is an application under section 183(5) of the Companies Act praying that the notice dated 12th of April 1980 issued by the Provisional Liquidator may be set aside. and he be stopped to take into the possession, the assets of Muslim Cotton Ginning Factory, Tandlianwala.

2. The facts leading to this petition are that this Court in C. O. 16/75 allowed a scheme of splitting the parent Company into three companies A. B. M. Associates Ltd.. Hodabia Textile and Zulfiqar Associates vide order dated 26th March 1976. It was agreed therein by the parties of the three pacts that the Income-tax liability which came out to be Rs. 1,17,00,000 shall be paid equally by them.

3. In pursuance to the said demand, the Tax Recovery Officer issued a notice dated 27th March 1980 to the respondent-Company. The proclama tion was also published- in Daily "Pakistan Times" and `Mashraq' on 2nd April 1980, for the sale of Muslim Ginning Factory owned by the respondent. Meanwhile, one Kaman filed a writ petition on J2th.May, 1980 and prayed for staying of proceedings. He, however, withdrew the writ petition on 15th May, 1980.

4. The Tax Recovery Officer then invited tenders on 15th of September, 1980 for the sale of Muslim Cotton Ginning Factory, Tandlianwala. He also issued a proclamation in the daily `Pakistan Times' and `Mashraq' dated 17th of September, 1980 giving the last date for receiving-the bids. Bids were received on 5th of October 1980. The tenders were opened on 6th of October 1980 and the given by the present applicant in the sum of Rs. 10,00,000 was found to be highest. The factory in question was then conveyed to the petitioner on 10th of November, 1980. Its possession was given on 25th of November 1980.

5. The petitioner in the main case approached this Court on 8th July 1980. The Official Liquidator was appointed on 26th November,. 1980. It is contended by she learned . counsel that as the property in question fell under the charge of this Court on 8th July, 1980. No Court or other authority could pass any order against the same. He referred to sections 168 and 171 of the Companies Act. He also referred to Shiromani Sugar Mills Ltd. v. ,Governor General in-Council (.A I-R 1932 All..354) wherein it was held that the proceedings taken by, the Income-tax Officer could not be protected under section 232(2) of the Companies Act so as to give preference to the Government dues. He also refereed to. The Bank of Bihar, Ltd., PaIna v. Secy. of State and others (A I R 1932 Pat.. 1) wherein the same view was taken. A different view had been taken in the case of West Lalkdin Coal Co. Ltd. (A I R 1926 Cal. 781). It was held there that section 232(2) prevails and consequently any proceedings taken by the Government were protected.

6. After bearing the learned counsel and going through the case-law referred to above, I am pursuaded to agree with. the view taken by the Calcutta High Court. Section 168.-provides that a winding up of a company l, 'by the Court shall be deemed to commence at the time of presentation of the petition for winding up. The effect of the provision inter alia is that any disposition of property of the company made after presentation of the petition for compulsory winding up shall, unless the Court otherwise directs, be void as held in the case of The Ripon Press do Sugar Mill Co. Ltd., Belldiy v. Gopal Chefti and others (1AIR 1932 P C 1).

7. Section 171 lays down that after winding order or appointment of Provisional. Liquidator no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave .of the Court and subject to such terms as the Court may impose.

8. It is to be noted that both sections 168 and 171 are subject to the orders of the Court. Section 232(2) on the other hand is neither subject to section 168 or 171 of the Companies Act nor does it give any discretion to the Court. This is further supported by a comparison made of subsec tion (1) with it. Section 232(1) says that when a company is being wound up by or subject to the supervision of the Court, any attachment, distress or execution put in force without leave of the Court against the estate or effects or any sale held without leave of the Court or any of the properties of the company after the commencement of the winding up, shall be void. Thus while the term legal proceedings in section 171 appears not to cover attach ment, distress or sale, the section 232(1) will, not even apply if the above action or proceedings were taken by, the Government. Further, the later section has to prevail over the earlier one and so it is 232(2) which will hold the field to uphold the sale proceedings taken by the Government. At any rate the taxes, rates etc., payable to the Government have pref6rence under section 230 of the Companies Act and so even on that score .the recovery of tax bona fide and lawfully should not be frustrated.

9. The Patna case cited by the learned counsel for the petitioner laid down that leave of the Court was essential for the Government for the purpose of proceeding in execution and it was not the intention of the Legislature that the Court should be given discretion to permit proceedings which would have the effect of giving to any particular creditor a priority to which he was otherwise not entitled. It will be seen that though the learned Judges did reproduce the two sections 171 and 232(2) in the judgment, yet they did neither consider their import nor they realized that section 230 did give preference to the Government dues.

10. The case of Shiromonf Sugar Mills is also to the same effect. The learned Judges in that case did not approve the decision in West Laikdin Coal Co. Ltd. and Commissioner of Income-tax :. Official Liquidators, Agra Spinning & Weaving Mills Co. (1 L R 56 All. 68,) as according to them they were wrongly decided. They rather thought that had the Food Controller v. Cork (1923 A C 647) and Re: Hinley & Co. Ltd. (1878 Ch. D 469) been brought to the notice of learned Judges who decided those cases, they would have taken a different view. The learned Judges then held that section 232(2) does not constitute a saving of the right of the Government as against the terms of section

171. They emphasised that as section 171 lays down that certain proceedings shall not be "commenced" or "proceeded with" the status quo shall have to de main tained. They remarked, however, that any proceedings taken by the Govern ment will not be void. The conclusion reached was that though the proceedings commenced or proceeded with by the Government are not void, yet they can be stopped by the Court under section

171. There can hardly be any dispute about the conclusion as even section 232(2) does not prohibit that.

11. There arise thus two questions :- (1) Does the term "other legal proceedings" in section 171 cover the phrase 'any attachment', 'distress' or 'execution' as used in section 232(1) ? (2) Do the two sections cover different situations or is one of them redundant? The terms "commenced or proceeded with" in section 171 impute knowledge. It is however, possible that any party or even Government might have been proceeding under section 232(1) without knowledge of winding up and might have taken steps to achieve one of the results referred to therein. It is in such cases the Court may, if it so decided stop proceedings by an order and so materially affect the proceedings taken by the Government only.

12. There may also be a situation where the proceedings as mentioned in section 232(1) were taken with or without knowledge and were not stopped by. the Court. In that all the proceedings given in section'232(1) will be void and so ineffective but those taken by the Government will be effective. Such an interpretation will give meaning to both the provisions in sections 171 and

232. The application - of the principle of Allahabad case as such, on the other hand, would mean that section 23 2(2) shall have to be considered redundant. In this view of the matter the first interpretation will be preferred.

13. There is another way of looking at this. Section 171 speaks of 'suit and other legal proceedings. If this phrase includes 'attachment, distress or execution' then and only then the above discussion will be necessary. On the other hand, if they are species apart, the question of redundancy, super fluity or even reconciliation will not arise. This aspect of the cast was considered by a Full Bench of this Court in Shakuntla v. The Peoples Bank of Northern India Ltd. ((1941)221 L R 760), to hold that where, in execution of . a decree obtained by a company in liquidation, certain property has been attached as belonging to the judgment-debtor and a third person has unsuccessfully objected to the attachment on the ground that the property belonged to him and not to the judgment-debtor, such person cannot bring a suit. under O. XXI, rule 63, C: P. C., against the company, for a declaration of his title, without first obtaining, under section 171, leave of the Court. The following observations of the Full Bench may be reproduced with advantage :-- "The expression 'legal proceeding' in this section is coupled with 'suit' and obviously means proceeding ejusdem generis, that is to say, original proceedings in a Court of first instance, analogous to a suit, initiated by means of a petition similar to a plaint. It does not include proceedings taken in the course of ,the suit, nor proceedings arising from the suit and continued in a high court, like an appeal from an interlocutory or final order passed' the suit. The rule of inter pretation to be followed in such cases is contained in the maxim copulatio verborum indicat occeptationem in eadem sensu (the coupling of words shows that they are to be understood in the same sense)." The leasoed Judges also approved Bhawani Shankar v. Industrial Bank of India Ltd. (70 P R 1918) and Kishan Singh v. Industrial Bank of India in Liquidation ((3)62PR1915) wherein it was held that an appeal or petition for revision preferred by a defendant against whom the action had been brought by a company in liquidation did not require the leave of the Court.

14. The learned Judges further observed at page 772 that the expression "legal proceedings" in the section appears to us to mean original proceedings analogous to a suit and not proceedings 'arising in the suit, though carried on in the Court of appeal or revision. They observed that Kishan Singh v. Industrial Bank of India in Liquidation rightly interpreted the decision of the House of Lords in Humber's case (1901)85LTR

141. The view given above has been followed throughout. The different view taken by a Full Bench by a Allahabad High Court in Shiromani Sugar Mills thus cannot be followed even on this ground.

15. The learned counsel for the petitioner then submitted that the sale was fraudulent and, therefore, should not be condoned. Without referring to the proclamations in two national dailies on 2nd April, 1980 and 17th September, 1980 concerning the sale of the property, the learned counsel could not say as to how he supported his contention. It is to be noted that the sale had been proclaimed through two daily newspapers on two different occasions. The bids were invited vide publication dated 17th of September 1980. It has neither been shown nor even suggested that any other person offered a bid higher than Rs. 10,00,000 of the applicant. I am, -therefore, .not pursuaded to accept the allegation of the petitioner that the sale was fraudulent . In view of the above, I do not find any merit in the objection and while accepting the applications hold that the sale proceedings taken by the Tax Recoveries shall not be interfered with. There will ' be no order as to costs. S. Q. Application accepted.