Company court stay powers do not cover sales tax penalty proceedings; assessment must proceed before tax authorities.

Section 391(6) of the Companies Act, 1956 permits a company court to stay suits or proceedings against a company to protect its assets while a compromise or arrangement is pending, but that power does not extend to assessment or penalty proceedings under the Delhi Sales Tax Act, 1975. Such proceedings lie within the exclusive statutory jurisdiction of the sales tax authorities and cannot be restrained by the company court, since they determine liability under the taxing statute. Recovery proceedings, which may directly affect company assets, stand on a different footing and may be stayed in appropriate cases.

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Issues: Whether section 391(6) of the Companies Act, 1956 empowers the company court to stay proceedings before the Sales Tax Officer for the levy of penalty under the Delhi Sales Tax Act, 1975.

Analysis: Section 391(6) authorises stay of suits or proceedings against the company to protect the assets of the company while a compromise or arrangement is pending, but the expression "proceeding" must be read in context. Proceedings for assessment and imposition of penalty under the sales tax law fall within the exclusive statutory jurisdiction of the sales tax authorities. The company court cannot restrain a statutory authority from performing duties imposed by the taxing statute, nor can it arrest proceedings meant to determine liability under that enactment. The scheme of arrangement requires disclosure of the company's true and latest financial position, which cannot be fairly presented if penalty proceedings are prematurely halted. The court distinguished recovery proceedings, which may affect the company's assets and can be stayed in appropriate cases, from assessment or penalty proceedings which must run their course before the sales tax authorities.

Conclusion: Section 391(6) does not confer jurisdiction on the company court to stay proceedings for levy of penalty under the Delhi Sales Tax Act, 1975. The stay against penalty proceedings was therefore unsustainable, while recovery proceedings stood on a different footing.

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