Appeal allowed, stay on penalty lifted, recovery stay remains. Sales Tax Officer can proceed, subject to winding-up court approval.

The appeal was allowed, and the stay on penalty proceedings imposed by the company judge was discharged. The court maintained that the penalty proceedings could continue before the Sales Tax Officer. However, the stay on recovery proceedings remained in place, ensuring that the Sales Tax Officer would need to obtain leave from the winding-up court before initiating any recovery actions. The parties were ordered to bear their own costs.

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Issues Involved:
1. Jurisdiction of the company judge to stay penalty proceedings under the Sales Tax Act.
2. Interpretation of the term "proceeding" under section 391(6) of the Companies Act.
3. The relationship between the Companies Act and the Sales Tax Act regarding the imposition of penalties and recovery of dues.
4. The requirement for the Sales Tax Officer to obtain leave from the winding-up court before initiating recovery proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Company Judge to Stay Penalty Proceedings under the Sales Tax Act:
The primary issue in this judgment was whether the company judge had the jurisdiction to stay penalty proceedings initiated by the Sales Tax Officer against the company. The court concluded that the company judge does not have the power to stay such proceedings. The rationale was that the Sales Tax Act confers exclusive jurisdiction on the sales tax authorities, and the company court cannot interfere with the statutory duties of these authorities. The court emphasized that the legislature did not intend for the company judge to restrain the Sales Tax Officer from performing his statutory duties, such as imposing penalties.

2. Interpretation of the Term "Proceeding" under Section 391(6) of the Companies Act:
The court examined the meaning of the term "proceeding" as used in section 391(6) of the Companies Act. It was determined that while the court has the power to stay suits or proceedings against the company to protect its assets and ensure equitable treatment of creditors, this power does not extend to staying penalty proceedings under the Sales Tax Act. The court noted that the intention of the legislature was not to allow the company judge to interfere with the statutory obligations of the Sales Tax Officer.

3. Relationship between the Companies Act and the Sales Tax Act Regarding the Imposition of Penalties and Recovery of Dues:
The judgment highlighted the distinct and exclusive jurisdictions of the Companies Act and the Sales Tax Act. It was noted that while the company judge can stay recovery proceedings to prevent the dissipation of the company's assets, he cannot stay the imposition of penalties under the Sales Tax Act. The court referenced several precedents, including S.V. Kondaskar v. V.M. Deshpande and Damji Valji Shah v. Life Insurance Corporation of India, to support the conclusion that the company court's jurisdiction does not extend to tax assessment and penalty proceedings.

4. Requirement for the Sales Tax Officer to Obtain Leave from the Winding-up Court Before Initiating Recovery Proceedings:
The court clarified that while the Sales Tax Officer does not need to obtain leave from the winding-up court to impose penalties or conduct assessments, he must seek such leave before initiating recovery proceedings. This ensures that the company's assets are not prematurely seized, allowing the winding-up court to scrutinize the claims and ensure equitable distribution among creditors. The court cited the Full Bench decision in Life Insurance Corporation of India v. Asia Udyog Private Ltd. to reinforce this principle.

Conclusion:
The appeal was allowed, and the stay on penalty proceedings imposed by the company judge was discharged. The court maintained that the penalty proceedings could continue before the Sales Tax Officer. However, the stay on recovery proceedings remained in place, ensuring that the Sales Tax Officer would need to obtain leave from the winding-up court before initiating any recovery actions. The parties were ordered to bear their own costs.

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