Company court stay power does not extend to sales tax penalty proceedings within the exclusive jurisdiction of tax authorities.

Section 391(6) of the Companies Act, 1956 allows the company court to stay proceedings only where they threaten the company's estate or concern recovery of an ascertained liability. It does not extend to statutory proceedings before sales tax authorities for assessment or for levy of penalty under the Delhi Sales Tax Act, 1975, because those matters fall within the authorities' exclusive jurisdiction. The company court cannot restrain the statutory authority from performing duties under the fiscal statute or stay the statute's operation itself. The stay of penalty proceedings was therefore unsustainable.

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Issues: Whether, on an application under section 391(6) of the Companies Act, 1956, the company court had jurisdiction to stay proceedings under the Delhi Sales Tax Act, 1975 for imposition of penalty against the company.

Analysis: Section 391(6) empowers the court to stay suits or proceedings against the company to protect the estate and to prevent a scramble for assets while a scheme of arrangement is under consideration. That power, however, is not unlimited. Proceedings under the sales tax law for assessment and for levy of penalty are matters within the exclusive jurisdiction of the statutory sales tax authorities under the special enactment. The company court cannot restrain the statutory authority from performing duties imposed by the sales tax law, nor can it stay the operation of the fiscal statute itself. The distinction is between proceedings that determine tax liability and proceedings for recovery of an ascertained liability. Only the latter can affect the company's estate directly and may be stayed by the company court.

Conclusion: The company court had no jurisdiction to stay penalty proceedings under the Delhi Sales Tax Act, 1975. The stay of penalty proceedings was therefore unsustainable and the appeal succeeded on that point.

Ratio Decidendi: Under section 391(6) of the Companies Act, 1956, the company court may stay only those proceedings that threaten the company's estate or are in the nature of recovery, and not statutory proceedings before the sales tax authorities for assessment or levy of penalty, which lie within their exclusive jurisdiction.

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