# ·- • v. M. W. PRADHAN

- **Citation:** [1966] 3 S.C.R. 948
- **Court:** Supreme Court of India
- **Decided:** 1966-03-21
- **Bench:** K. Subba Rao, V. Ramaswamj, ]. M. Shelat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/v-m-w-pradhan-3783
- **Pages:** 12

## Headnote

B
CivU Procedure Code 1908, OXL r. 1 (d)-Receiver directed by court
,
lo flU winding up pOl/tlon agabut debtor Company--Such direction whether
permltl1d by said rwlt.
Indian Compania Act, 1956, ss. 439(1) and 434-Wiuthtr Receiver
appolnttrd by Court is a 'creditor' within the meaning of s. 439-Notl~
11iven by Receiver to company asking It to pay 10 the Additional Collector c
t~ income tax demanded from it under s. 46 of the Indian Income-tax Act,
1922--.s'uch notice whether contravenes s. 434-Company not moking payment to Additional Collector whttMr 'negkcts to pay lls deb(, within
meaning of •. 434.
Tho appellant company purchased a farm from a joint Hindu family
tor Rs. 40 laca out of which Rs. 25 lacs remained to be paid. The lncomeIAX Ofllcer served a notice under s. 46 of the Indian Income-tax Act,
1922 on the company asking it not to pay the said amount of Ra. 2S lacs
to the joint family but towards income-tax payable by the said family.
Thereafter ooe of the mernben of the joint family filed a suit for the
partition of the family assets and at his request the coon appointed a
Rocciver.
The Receiver by notice
under s. 434 of the Companies Act
asked the company to pay Rs. 25 lacs towards income-lax to the Additional Collector and when it did not do so he 90Ught
permis.ion from
the Coun under 0.XL r. I (d) of the Code of c:vil Procedure to filo a
~tition for winding up against
the company .. which was allowed.
The
Company's appeal to the Division Bench of the High Court failed
and
it appealed to this Court by special leave.
The Court had to comider (i)
whether the coun could under O.XL r. l(d) of the Code authorise the
Receiver to file a winding-up petition against the company, (ii) whether
a received was a 'creditor' within the meaning of s. 439(1) of the Indian
Companies Act, (iii) whether in asking the company to pay the sum
in question to the Additional Collector the Receiver contravened s. 434,
(iv) whether in not making the payment the company 'neglected to pay
its debt' and (v) whether there was a bona fide dispute as to the liability
of the company to pay the debt.
HELD :
(i) AMuming that a petition for winding up of a company
WolS not a suit wilhin t~c meaning of O.XL r. I (d) of the Code, the other
powers mentioned therein wero comprehensive enough to enable the Receiver to take D"""-'sary proceedings to realise the property of and debl5
due to the joint family.
A winding up petition ia one of the modes of
realising deb ta form a company, and the Respondent therefore bad power
to file such a petition.
Bowes v. Hope Lift Insurance a1ld GUIJ1'antt1 Co. (1865) II H.L.C.
388, Rt Gtneral Company for Promotion of Land Credit, (1870) L.R. S
Ot.D. 380 and Re National Ptrmontnt Building Socitty, (1869) L.R. S
Ch.D. 309, Relied on.
That apart, under 0.XL. R. I ( d) the Court can also confer on the
Rcc:eivor ailch of those powers as the Coun think& ftL
It is implicit in
948
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HARINAGAR MILLS v. PRADHAN (Subba Rao, J.)
949'
this apparently wide power that it shall be confined to the scope of the
Receiver's administration of the estate. If, for the proper and effective
management of the estate of which the Receiver has been appointed the
Court thinks fit that it shall confer power on the said Receiver to talce
steps for the winding up of the debtor-company, it must be conceded that
the Court shall have power to give necessary directions to the Receiver
in that regard. [951 G-952 E]
(ii) The Receiver was a 'creditor' within the meaning of s. 439(1) (b}
of the Indian Companies Act. [956 DJ
In Re Sacker, Ex Parle Sacker (1888) L.R. 22 Q.B. 179 and In reMacoun, L.R. (1904) 2 K.B. 700, considered.
K. V. Mallayya v. T. Ramaswami & Co .• [1963) II M.L.J. 100 (S.C.),
relied on.
(iii) By asking the company to pay the sum in question to the Addition Collector the requirements of s. 434 wer~ not contravened. [957 DJ
Japan Cotton Trading Co. Ltd. v. Jajodia Colton Mll/J Ltd. (1926)
l.L.R. 54 Cal. 345, Kures

## Text

HARINAGAR SUGAR MILLS LTD.
A
·-
•
v.
M. W. PRADHAN
.......
March 21, 1966
(K. SUBBA RAO, V. RAMASWAMJ AND]. M. SHELAT, JJ.)
B
CivU Procedure Code 1908, OXL r. 1 (d)-Receiver directed by court
,
lo flU winding up pOl/tlon agabut debtor Company--Such direction whether
permltl1d by said rwlt.
Indian Compania Act, 1956, ss. 439(1) and 434-Wiuthtr Receiver
appolnttrd by Court is a 'creditor' within the meaning of s. 439-Notl~
11iven by Receiver to company asking It to pay 10 the Additional Collector c
t~ income tax demanded from it under s. 46 of the Indian Income-tax Act,
1922--.s'uch notice whether contravenes s. 434-Company not moking payment to Additional Collector whttMr 'negkcts to pay lls deb(, within
meaning of •. 434.
Tho appellant company purchased a farm from a joint Hindu family
tor Rs. 40 laca out of which Rs. 25 lacs remained to be paid. The lncomeIAX Ofllcer served a notice under s. 46 of the Indian Income-tax Act,
1922 on the company asking it not to pay the said amount of Ra. 2S lacs
to the joint family but towards income-tax payable by the said family.
Thereafter ooe of the mernben of the joint family filed a suit for the
partition of the family assets and at his request the coon appointed a
Rocciver.
The Receiver by notice
under s. 434 of the Companies Act
asked the company to pay Rs. 25 lacs towards income-lax to the Additional Collector and when it did not do so he 90Ught
permis.ion from
the Coun under 0.XL r. I (d) of the Code of c:vil Procedure to filo a
~tition for winding up against
the company .. which was allowed.
The
Company's appeal to the Division Bench of the High Court failed
and
it appealed to this Court by special leave.
The Court had to comider (i)
whether the coun could under O.XL r. l(d) of the Code authorise the
Receiver to file a winding-up petition against the company, (ii) whether
a received was a 'creditor' within the meaning of s. 439(1) of the Indian
Companies Act, (iii) whether in asking the company to pay the sum
in question to the Additional Collector the Receiver contravened s. 434,
(iv) whether in not making the payment the company 'neglected to pay
its debt' and (v) whether there was a bona fide dispute as to the liability
of the company to pay the debt.
HELD :
(i) AMuming that a petition for winding up of a company
WolS not a suit wilhin t~c meaning of O.XL r. I (d) of the Code, the other
powers mentioned therein wero comprehensive enough to enable the Receiver to take D"""-'sary proceedings to realise the property of and debl5
due to the joint family.
A winding up petition ia one of the modes of
realising deb ta form a company, and the Respondent therefore bad power
to file such a petition.
Bowes v. Hope Lift Insurance a1ld GUIJ1'antt1 Co. (1865) II H.L.C.
388, Rt Gtneral Company for Promotion of Land Credit, (1870) L.R. S
Ot.D. 380 and Re National Ptrmontnt Building Socitty, (1869) L.R. S
Ch.D. 309, Relied on.
That apart, under 0.XL. R. I ( d) the Court can also confer on the
Rcc:eivor ailch of those powers as the Coun think& ftL
It is implicit in
948
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HARINAGAR MILLS v. PRADHAN (Subba Rao, J.)
949'
this apparently wide power that it shall be confined to the scope of the
Receiver's administration of the estate. If, for the proper and effective
management of the estate of which the Receiver has been appointed the
Court thinks fit that it shall confer power on the said Receiver to talce
steps for the winding up of the debtor-company, it must be conceded that
the Court shall have power to give necessary directions to the Receiver
in that regard. [951 G-952 E]
(ii) The Receiver was a 'creditor' within the meaning of s. 439(1) (b}
of the Indian Companies Act. [956 DJ
In Re Sacker, Ex Parle Sacker (1888) L.R. 22 Q.B. 179 and In reMacoun, L.R. (1904) 2 K.B. 700, considered.
K. V. Mallayya v. T. Ramaswami & Co .• [1963) II M.L.J. 100 (S.C.),
relied on.
(iii) By asking the company to pay the sum in question to the Addition Collector the requirements of s. 434 wer~ not contravened. [957 DJ
Japan Cotton Trading Co. Ltd. v. Jajodia Colton Mll/J Ltd. (1926)
l.L.R. 54 Cal. 345, Kureshi v. A.rgu Footwear Ltd. A.I.R. 1931 Rang. 306
and W. T. Henley's Telegraph Works Co. Ltd., Calcutta>". Gorak/ipur Electric Supply Co. Ltd., Allahabad, A.I.R. 1936 All. 840, referred to.
(iv) By not paying the amount in question to the Additional Collector the company clearly neglected to pay the amount within the meaning
of s. 434 of the Indian Income-tax Act. [958 HJ
In re Europe and Banking Company Ex Parle Bayll< (1866) L.R. 2
Eq. 521. distinguished.
( v) On the facts of the case thei:e was no bona fide dispute as to
tho liability of the company to the joint family so as to render the
winding up petition an abuse of the process of the Court. (9 59 F]
W. T. Henley's Telegraph Works Co. Ltd., Calcutta v. Gorakhpur Electric Supply Co. Ltd., Allahabad, A.LR. 1936 All. 840 and In rt Gold Hill
Mines, (1883) LR. 23 Ch. D. 210, referred to.
CML APPELLATE JURISDICTION : Civil Appeal No. 569 of
1965.
Appeal by special leave from the judgment and order dated
December 14, 1964 of the Bombay High Court in Appeal No. 67
of 1964.
N. C. Chatterjee, S. T. Desai, M. M. Vakil, Ganpat Rai and
S. S. Khanduja, for the appellant.
S. V. Gupte, Solicitor-General, J. B. Dadachanjl, 0. C. Mathur
and Rarinder Narain, for the respondent.
The Judgment of the Court was delivered by
Subba Rao, J. The facts that gave rise to this appeal may
be briefly stated : On January 3, 1933, Messrs. Harinagar Sugar
Mills Ltd., hereinafter called the Company, was incorporated
under the Indian Companies Act, 1913 (Act 7 of 1913). Narayanlal Bansilal was the Chairman of the Board of Directors of
950
SUPJ.EMB COUIT J.BPO!lTS
(1966] 3 S.C.R.
the Company.
He was also the karta and manager of the joint
Hindu family consisting of himself, his sons and daughters. As
such karta he purchased a large block of shares of the Company
from and out of the funds of the joint family. The said family
also owned a sugarcane farm at Harinagar in the State of Bihar.
On March 8, 1956, Narayanlal Bansilal and his three sons sold
the said farm to the Company for a sum of Rs. 40,00,000. Under
the sale-deed the Company agreed to pay the price in instalments.
Though the Company paid a few instalments, a sum of Rs. 25,00,000.
still remained to be paid by it to the joint family.
In July 1961,
one of the sons of Narayanlal Baosilal filed Suit No. 224 of 1964
on the Original Side of the Bombay High Court against his father
and others for partition of the joint family properties. Pending
the suit, on October 20, 1961, the Court, in exercise. of its powers
under O.XL, r. 1, of the Code of Civil Procedure, appointed a
Court Receiver as Receiver of all the joint family properties. Long
prior to the filing of the said suit for partition, on July 24, 1956,
the Additional Income-tax Officer, Section V, Central Bombay,
issued a notice to the Company under s. 46 of the Indian Income
tax Act, 1922, prohibiting it from paying the debt due by it to
the joint family and calling upon it to pay the said amount to the
Income-tax authorities towards income-tax due from the said joint
family. After the Receiver
was appointed, on June 29, 1962,
the said Receiver issued a notice under s. 434 of the Indian Companies Act calling upon the Company to pay the amount, due from
it to the joint family, with interest to the Additional Collector of
Bombay towards
the income-tax dues of the family and also
informing it that, in case the said payment was not made within
21 days of the receipt of the notice, proceedings for winding up
of the Company under the Indian Companies Act would be taken.
As the Company did not comply with the terms of the said notice,
the Receiver moved the High Court for directions and obtained
an order on November 22, 1963, authorizing him to file a petition for winding up of the Company. After obtaining the permission of the Court, on January 10, 1964, the Receiver filed a
petition in the High Court for winding up of the Company. After
hearing the objections filed by the Company, Kantawala, J., admitted the petition and directed advertisements to be given in the newspapers and in the Government Gazette mentioning his order.
The Company preferred an appeal against that order and that was
heard by a division Bench consisting of Patel and Tulzapurkar,
JJ. The learned Judges dismissed the appeal. Hence the present
appeal, by special leave.
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Mr. N. C. Chatterjee, learned counsel for the appellant ComH
pany raises before us the same contentions which were advanced
un1u~sfully on behalf of the
Company in the High Court.
We shall deal with the said contentions seriatlm.
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HAllINAGAR MILLS v. PRADHAN (Subba Rao, J.)
951
A
The first contention of the learned counsel is that the Court
Receiver had no power to file a petition in the Court for winding
up of the Company. Elaborating this
contention the learned
counsel contends that under O.XL, r. l(d), of the Code of Civil
Procedure a court can only confer on a Receiver the power to
bring a suit and that the expression "suit" does not talce in a petiB
tion for winding up of a company.
Order XL, r. 1., of the Code of Civil Procedure reads :
Where it appears to the Court to be just and convenient, the Court may by orderC
(d) confer upon the receiver all such powers, as
to bringing and defending suits and for the realization,
management,
protection,
preservation
and
improvement of the property, the collection of the rents
and profits thereof, the application and disposal of such
rents and profits, and the execution of documents as
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the owner himself has, or such of those powers as the
Court thinks fit."
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In exercise of the said power, the Court appointed the respondent as the Court Receiver on October 20, 1961, of the properties belonging to the joint family in the suit. The material part
of the order reads :
" ............ IT IS FURTHER ORDERED that
the Court Receiver be and is hereby appointed Receiver of the properties belonging to the joint family
in suit and all the books of accounts papers and vouchers
with all necessary powers under Order XL Rule 1 of
the Code of Civil Procedure including power to vote
and or exercise all the property rights in respect of shares
belonging to the joint family in the several joint stock
companies mentioned in the plaint
including power
to file suit .............................. " .
Under this order, all the necessary powers under O.XL, r. I,
of the Code of Civil Procedure were conferred upon the Receiver,
including the right to file suits. Assuming that a petition for
winding up of a company is not a suit within the meaning of
O.XL, r. l(d) of the said Code, the other powers mentioned therein
are comprehensive enough to enable the Receiver to take necessary proceedings to realise the property of and debts due to the
joint family. Can it be said that the petition filed by the Receiver
for winding up of the Company is not a mode of realisation of
the debt due to the joint family from the Company ? In Palmer's
Company Precedents, Part II, 1960 Edn., at p. 25, the following
passage appears :
952
SUPREME COURT REPORTS
[ 1966] 3 S.C.R.
"A winding up petition is a perfectly proper remedy
A
for enforcing payment of a just debt. It is the mode of
execution which the Court gives to a creditor against a
company unable to pay its debts."
This view is supported by the decisions in Bowes v. Hope Life
Insurance and Guarantee Co.('), Re General Company for Promotion
of Land Credit(•) and Re National Permanent Building Society(3).
B
It is true that "a winding up order is not a normal alternative in the
case of a company to the ordinary procedure for the realisation of
the debts due to it"; but nonetheless it is a form of equitable execution. Propriety does not affect the power but only its exercise.
If so, it follows that in terms of cl. (d) of r. 1 of O.XL of the Code
of Civil Procedure, a Receiver can file a petition for winding up of a c
company for the realisation of the properties, movable and immovable, including debts, of which he was appointed the Receiver.
In this view, the respondent had power to file the petition in the
Court for winding up of the Company.
That apart, under O.XL, r. l(d), of the Code of Civil Procedure
the Court can also confer on the Receiver such of those powers as
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the Court thinks fit. It is implicit in this apparently wide power
that it shall be confined to the scope of the Receiver's administration of the estate.
If, for the proper and effective management
of the estate of which the Receiver has been appointed the Court
thinks fit that it shall confer power on the said Receiver to take
steps for winding up of the debtor-company, it must be conceded
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that the Court will have power to give necessary directions to the
Receiver in that regard.
On November 22, 1963, the Receiver obtained the directions
of the Court empowering him to file the winding-up petition against
the Company. But, it is contended that the learned Judge made
that order without prejudice to the contentions of the members
of the joint family and that one of the contentions was that a petition for the winding up of the Company was not maintainable at
the instance of the Receiver. This reservation, no doubt, entitles
the appellant to raise the plea of the maintainability of the petition
by the Receiver for winding up of the Company. But it docs not
bear on the question of authorization obtained by the Receiver
to file the said petition. The question of the maintainabili!f of
the petition will be dealt with by us at a later stage of the Judgment. In this view also the Receiver had the power to file the
petition before the Court for winding up of the Company. There
are, therefore, no merits in the first contention.
The second contention of the learned counsel is that the Court
Receiver is not a "creditor" within the meaning of the relevant
"-----·
(I) 11865) ti H.LC. 388.
(2) [1870) LR. 5 Ch. D. 380.
(3) [1869) L.R. 5 Ch. D. 3<J9.
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HARINAGAR MILLS v. PRADHAN (Subba Rao, J.)
953
A . sections of the Indian Companies Act. The relevant provisions of
the Indian Companies Act read:
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Section 433. A company may be wound up by the Court,-
(e) if the company is unable to pay its debts.
Section 434. (1) A company shall be deemed to be
unable to pay its debts-
(a) if a creditor, by assigning or otherwise, to whom
the company is indebted in a sum exceeding five hundred
rupees then due, has served on the company, by causing it
to be delivered at its registered office, by registered post ·
or otherwise, a demand under his hand requiring the
company to pay the sum so due and the company has for
three weeks thereafter neglected to pay the sum, or to
secure or compound for it to the reasonable satisfaction
of the creditor.
Section 439. (1) An application to the Court for the
winding up of a company shall be by petition presented,
subject to the provisions of this section,-
(d) by any creditor or creditors, including any contingent of prospective creditor or creditors.
A combined reading of these provisions indicates that unless the
Court Receiver is a creditor by assignment or otherwise to whom
the company is indebted, he cannot maintain an application under
s. 439 of the Indian Companies Act. In support .of the contention
that he is not such a creditor, strong reliance is placed on the decision in In Re Sacker, Ex Parte Sacker('). The facts of that case,
as given in the head-note are as follows: In an action in the Chancery Division a receiver was appointed to collect and receive goods
comprised in a charge given to the plaintiffs by one of the defendants,
including therein any balance of the proceeds of the goods so charged in the hands of the other defendant.
An order was subsequently made for the payment by the last-mentioned defendant to the
receiver of a specific sum, being money received by him in respect
of the proceeds of the goods, and comprised in the charge. The
Court of Appeal held that the receiver was not a "creditor" entitled
to present a bankruptcy petition against such defendant within the
meaning of s. 6 of the Bankruptcy Act, 1883. Lord Esher, M.R.,
in coming to the said conclusion described the legal status of a
receiver thus:
"The petitioner is a receiver. He is not a trustee.
There is no debt due to him from the appellant. He could
(I) [1888] L.R. 22 Q.B. 179, 183, 185, 186.
·954
SUPRBMB COURT RBPORTS
[1966] 3 S.C.R.
not sue for this sum of money in his own name either
at law or in equity.
Even if he could by the authority
of t~e Court sue fo~ it in his own name, is the money due
to hi~ personally either at law or in equity? At law it is
certamly not. The debt was due to another person for
whom he 1s not a trustee. The money will not he his
when he has got it. Would it he his in equity? I apprehend that he would hold it subject to the authority of the
Court, who would deal with it according to the circumstances of the case, but certainly not for his benefit."
Fry, L.J., said much to the same effect thus:
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"There is no debt of any kind due from Sacker to the
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receiver; consequently he is not a good petitioning creditor,
and the petition cannot be maintained."
Lopes, L.J., expressed the same idea thus:
"To constitute a good petitioning creditor's debt the
alleged debt must be certainly due and payable to the
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person who presents the petition. There is no debt due to
this receiver. He could not maintain an action of debt
for this money in his own name."
This decision, therefore, goes to the extent of holding that there
is no debt due to a receiver either at law or in equity, that he cannot
maintain an action of debt for the money in his own name and that,
therefore, he is not a good petitioning creditor. The scope of this
decision was explained by the Court of Appeal in !11 re Macowi(1).
There, on the dissolution of a firm of stock-brokers by the death
of one of the partners, the partnership assets, including a debt to
the late firm in respect of certain Stock Exchange transactions,
were assigned by the surviving partners to L for the purpose of
winding up the partnership, and notice of the assignment was served on the debtor. L obtained a decree against the debtor. Thereafter, he commenced an action in the Chancery Division for the
winding up of the partnership, and in that action a receiver was
appointed of the partnership assets. The receiver took an assignment of the judgment debt from L and obtained leave to issue
execution. Thereafter he served a bankruptcy notice on the debtor
and ultimately presented a bankruptcy petition against the debtor.
The Court of Appeal held that, as the receiver had obtained an
assignment of the judgment debt, he was a creditor entitled to present a bankruptcy petition. In the context, when the judgment in
In re Sacker's case(1) was pressed upon the Court to come to a contrary conclusion, Vaughan Williams, L.J., had this to say in regard
to that judgment:
(I) L. R. [19J4J 2 K. B. 7J.l, 7v3.
(2)[1888] LR. 22Q.B.179·
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HARINAGA!t MILLS v. PllADHAN (Subba Rao, J.)
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"In these circumstances it seems to me that we ought
not to hold the case of In re Sacker(') to be an authority
for the proposition that a receiver cannot be a good petitioning creditor even though the state of things is such that
he could maintain an action at law. Itis plain that Fry L.J.
thought that he could; and Lopes L.J. seems to have taken
the same view-that is, the view that if the receiver were
the holder of a bill of exchange he could be a good petitioning creditor. In the present case the receiver happ~ns
to be the assignee of a judgment, and I think that bemg
the assignee of a judgment he can be a good petitioning
creditor even though when the money is received it is recovered for the purpose of enabling the Court of Chancery
to deal with it."
A comparison of these two decisions leads to the following legal
position: If a receiver could maintain an action at law or in equity
for the recovery of a debt, he would be a good petitioning creditor;
and, if he could not; he would not be one. In In re Sacker's case(')
it was not possible for the receiver to bring an action to recover
the debt either at law or in equity, whereas in Macoun's case(2),
the receiver, having obtained the assignment of the debt, could
maintain an action at law for the recovery of the debt. Therefore,
even in England a receiver, who can maintain an action to recover
a debt, would be a good petitioning creditor. In India, the scope
of the receiver's power is governed by the express provisions of the
Code of Civil Procedure. It is common place that a receiver
appointed by court has no estate or interest himself and the scope of
his power is defined by the provisions of O.XL of the said Code and
the specific orders made by the Court thereunder.
He is frequently
spoken to as the "hand of the Court". In exercise of the power
under the said cl. ( d) if a court confers upon the receiver power to
bring a suit to realise the assets which are the subject-matter
of the suit, it cannot be denied that the said receiver can file suits to
recover the debts forming part of the said assets. This Court in
K. V. Ma/ayya v. T. Ramaswami & Co. (3) held that a receiver
authorized to file suits to recover debts could institute suits therefor
in his own name. In that event, the position of such a receiver is
analogous to that of a receiver who can file an action in law or in
equity to recover a debt under the English law. If the latter is a
creditor in English law in respect of the debt recoverable by him,
there is no reason why a receiver empowered to file a suit under
O.XL of the Code of Civil Procedure cannot be a creditor. In
one case there is a voluntary assignment and in the other there is
a statutory assignment.
(1) (18881 L.R 22 Q.B.179.
(2) L R. [19;41 2. K. B. 700
(3) [1963] 2 M. L J, 110 (S. C.).
956
SUPllEME COURT REPORTS
(1966] 3 S.C.R.
The relevant provisions of the Indian Companies Act also lead
to the same position. Section 434 speaks of a creditor by assignment or otherwise to whom the company is indebted in a particular
sum. Such creditor can file a petition for winding up under s. 439
of the said Act. A creditor, therefore, under the Indian Companies Act is any person who acquires that character by assignment
or otherwise. The expression "otherwise" takes in any person to
whom another becomes indebted howsoever the relationship of
creditor and debtor is brought about between them. We come back
to the meaning of the word "creditor". Stroud's Judicial Dictionary, 3rd Edn., Vol. I, defines "creditor" to mean a person to whom a
debt is payable. Though this is one of the many definitions given
in the said dictionary, this appears to be the appropriate meaning.
A receiver appointed by the court to realise a debt can demand the
payment of the debt. If the debtor pays the debt to him, he gets
a full discharge; in default of payment, the receiver can file a suit in
his own name and obiain a decree. After obtaining the decree he
will certainly be a judgment-creditor. Such a receiver is a person
to whom a debt is payable by the debtor. In the present case, the
respondent was authorised to file suits to realise the assets of the
joint family, including the debt. We hold that the respondent is a
creditor within the meaning of s. 439(1)(b) of the Indian Companies
Act and, therefore, is competent to maintain the petition for winding up of the Company.
It is then contended that the notice issued by the Receiver was
not in strict compliance with the statutory requirements of s. 434
of the Indian Companies Act. Two main defects are pointed out,
namely, the notice did not require the appellant to pay the debt
to the joint family or the Receiver but to the Additional Collector
of Bombay and the said notice put it beyond the reach of the Company to secure or compound for the debt to the reasonable satisfaction of the Court Receiver.
Section 434 of the Indian Companies Act has been quoted earlier. Under the section before a
company shall be deemed to be unable to pay its debts two conditions must be satisfied, namely, (i) the creditor shall have delivered
a demand in the prescribed manner on the company to pay the sum
due to him; and (ii) the company has for three weeks thereafter
neglected to pay the same, or to secure or compound for it to the
reasonable satisfaction of the creditor. We have already held that
the Receiver is a creditor within the meaning of cl. (a) of s. 434(1)
of the Indian Companies Act. In the statutory notice issued by the
Receiver he had called upon the Company to make payment of
Rs. 25,00,000/ to the Additional Collector of Bombay by whom
the debt had been attached within the prescribed period of 21 days.
He had to do so because the Additional Collector had served a
notice dated July 24, 1956, under s. 46(5)(a) of the Indian Incometax Act, 1922, calling upon the Company to pay to him whatever
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HAlt!NAGAR MILLS v. PRADHAN (Subba Rao, J.)
957
amount was held by the Company on account of the joint family.
Section 434(1 )(a) of the Indian Companies Act does not say that the
demand made by the creditor on the Company shall be to pay the
amount due only to the creditor and not to any other person; nor
does it by necessary implication impose any such condition. What
is necessary is that the debtor by paying the amount demanded
shall be in a position to get full discharge of his liability. In the
present case the Receiver directed the amount to be paid to the
Additional Collector of Bombay for the purpose of liquidating the
income-tax payable by the joint family. Indeed, by paying the said
amount, and in view of the notice served on the Company under
s. 46(5)(a) of the Indian Income-tax Act, 1922, the Company will
get a full discharge of its liability to the joint family. Section 46(5)
(a) of the Income-tax Act says that any person making any payment
in compliance with a notice under s.46(5) (a)shall be deemed to have
made the payment under the authority of the assessee and the
receipt of the Income-tax Officer shall constitute a good and sufficient discharge of the liability of such person to the assessee. The
Receiver, therefore, in directing the amount to be paid to the Additional Collector of Bombay did not do anything in derogation of the
provisions of s. 434(l)(a) of the Indian Companies Act.
Nor are there any merits in the second link of the contention.
The question is whether, if proceedings were taken against the Company under s. 46(5)(a) of the Indian Income-tax Act, the Company
was deprived of the opportunity to pay the sum due to the respondent or to secure or compound for it to the reasonable satisfaction
of the creditor within the meaning of s. 434(1)(a) of the Indian Companies Act. After the statutory notice the Company could pay
the sum demanded or secure or compound for it to the reasonable
satisfaction of the creditor. The section does not confer a right on
a debtor but only gives him an opportunity to discharge the debt
in one or other of the ways mentioned therein. The debtor could
secure or compound for a debt only where the circumstances under
which the demand is made permit such a mode of discharge. But
whereas in this case both the debtor and the creditor were under an
obligation to discharge the income-tax dues and, as the creditor
directed the debtor to pay the entire amount due to him towards the
income-tax dues, there is no scope for the debtor to approach the
creditor for securing or compounding his claim. In this view, no
right of the Company is violated. as it has done under s. 434(l)(a)
of the Indian Companies Act. That apart, s. 46(5)(a) of the Indian
Income-tax Act does not in terms prevent the debtor from compounding his claim with the creditor. It only directs him to hold
the money for or on account of the assessee to pay to the Incometax Officer. But, if in contravention of the notice issued to him, the
debtor pays the said money to the creditor, he will be personally
liable to the extent of the liability discharged or to the extent of
958
SUPREME COURT REPORTS
(1966] 3 S.C.R.
the tax and penalties, whichever is less.
The Income-tax Officer
can also proceed against the debtor, as if the amount in respect
whereof the notice was issued was attached by the Collector in
exercise of his powers under the proviso to sub-s. (2) of s. 46 of the
Indian Income-tax Act. These provisions do not prevent the debtor
from compounding his claim with the creditor. If he compounds
the claim, any agreement entered into by him with the creditor will
not affect his liability t" pay the income-tax of the creditor to\the
extent covered by the notice issued under s. %(5) (a) of the Incometax Act; but the agreement would certainly be binding between the
creditor and the debtor. The Income-tax Officer has no concern
with it. In either view, therefore, the notice cannot be said to have
been issued in contravention of the provisions of s. 434(I)(a) of the
Indian Companies Act.
No doubt courts have held, in our view
rightly, that a statutory notice under s. 434(1)(a) of the Indian
Companies Act shall strictly comply with the provisions of the said
~ection: see J:ipa11 Cotton Trading Co. Lid. v. Jajodia Cotton Mills,
Ltd.(1); K11reshi v. Argu< Footwear Ltd.(2); and W. T. Henley's Telegraphs Works Co., Ltd., Calcutta v. Gorakhpur Electric Supply Co.,
Ltd., Allahabad(').
But in this case the statutory notice issued by
the respondent did not violate any of the requirements of the
Section. We, therefore, reject this contention.
The next contention is that the appellant had not neglected to
pay the sum to the respondent, as the said amount must he deemed
to have been attached by the Collector in exercise of his powers
und~r the proviso to sub-s.(2) of s. 46 of the Indian Income-tax Act,
1922. In support of this contention reliance is placed upon In re
European Ba11ki111: Company Ex Parre Baylis (I). There, a petition
was presented for winding-up of a Banking Company for a debt
of £65 due to the petitioner; but the said debt was attached in the
Lord Mayor's Court. The petition was dismissed on the ground
that, 'though the attachment did not absolutely do away with the
debt, it seized the debt into the hands of the Lord Mayor's Court.
In that case the demand was that the debtor should pay the amcunt
to the petitioning creditor and because of the attachment of that
amount by Lord Mayor's Court the debtor could not pay the
amount to the creditor.
But that judgment cannot possibly be of
any help to the appellant, for in the instant case the Receiver asked
the debtor to pay the amount due to the joint family to the Additional Collector, Bombay, towards the income-tax due from the
joint family. The debtor was not only not a~ked to do som~ thing
which was legally prohibited but was asked to comply with the
Collector's requisition under s. 46 of the Indian Income-tax Act,
1922.
By not doing so, the Company clearly neglected to pay the
amount within the meaning ors. -134 of the Indian Companies Act.
(l)
[1'26] I.L.R. 54 Cal. 345.
(2) A.I.R. 1931 Rang_ 3)6.
(3) A.l.R. t936 All. 84~.
(4)
[181>6] L.R. 2 Eq. S21.
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HARINAGAR MILLS v. PRADHAN (Subba Rao, !.)
959·
Lastly it is argued that there was a bona fide dispute in respect
of the liability of the Company to the joint family. It is said that
the Company's case was that the debt was due to four individuals
mentioned in the conveyance, namely, the father and his three sons,
whereas the Receiver's case was that the amount was due to the
joint family and, therefore, in the circumstances it cannot be said
that the Company neglected to pay the amount to the Receiver.
In W. T. Henley's Telegraph Works Co., Ltd., Calcutta v. Gorakhpur
Electric Supply Co., Ltd., Allahabad(') it was ruled that a mere service of notice of demand of debt by a creditor on a solvent company
did not entitle the creditor to a winding-up order if the company
bona fide disputed the existence of the debt. In that case it was
found that there was a bona fide dispute between the parties and that
the notice issued was a vehicle of oppression and an abuse of the
process of the Court. But the same cannot be said in the present
case. In In re Gold Hill Mines\2) also a winding-up petition was
dismissed on the finding that it was an abuse of the process of the
Court, it being a petition to compel payment of a small debt which
was under bona fide dispute.
In the present case, Narayanlal Bansilal was not only the karta
of the joint family but was also the Chairman of the Board of Directors of the Company. In the partition suit he filed an affidavit
wherein he stated:
"Referring to para !O(c) of the affidavit I deny
there is any manipulation in the balance sheet of Harinagar
Sugar Mills Ltd., as falsely sought to be suggested by
the 3rd defendant. No loan of Rs. 25,00,000/- has been
given by me to the said company. The said amount is
the balance of the purchase price payable by the said company to the joint family in respect of Harinagar Cane Farm."
In view of the said affidavit it is manifest that the alleged dispute
was not bona fide but was only a part of a scheme of collusion between the Company and the karta of the joint family. There are,
therefore, no" merits in any of the contentions raised by the
Company.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.
(1) A.I.R. 1936 Au. 84Q.
(2) (1833) L.R. 23 Ch. D. 210.
M!2Ssp. Cl./65-2,500-11-2-67-G!PF.