Winding-up recovery proceedings are legal proceedings and need company court leave before income-tax enforcement can continue.

In winding-up, the High Court's jurisdiction is not barred merely because income-tax recovery is in issue; the bar under Section 226(1) of the Government of India Act, 1935 applies only where the matter concerns the revenue itself or an act done in collection of revenue under the governing law. Where the dispute is about the mode of recovery during liquidation, the court may examine whether that recovery is authorised by the full legal framework, including company law. Proceedings under Section 46(2) of the Income-tax Act to recover arrears as land revenue are legal proceedings, because they involve formal statutory enforcement machinery. Such proceedings therefore require leave of the company court after a winding-up order.

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Issues: (i) Whether the High Court's jurisdiction was barred by Section 226(1) of the Government of India Act, 1935, in a matter concerning recovery of income-tax during winding-up; (ii) whether proceedings under Section 46(2) of the Income-tax Act to recover arrears as if they were land revenue were "legal proceedings" requiring leave under Section 171 of the Indian Companies Act, 1913.

Issue (i): Whether the High Court's jurisdiction was barred by Section 226(1) of the Government of India Act, 1935, in a matter concerning recovery of income-tax during winding-up.

Analysis: The jurisdictional bar was held to apply only where the matter concerned the revenue itself, or an act ordered or done in collection of revenue according to the law for the time being in force. The Court distinguished a challenge to the mode of collection from a challenge to the tax liability itself, and held that the relevant inquiry was whether the proposed recovery method was authorised by the whole body of law applicable in the circumstances, including the Companies Act provisions governing winding-up. Since the dispute was about the mode of recovery in liquidation and not the validity of the assessment as such, Section 226(1) did not oust jurisdiction at the threshold.

Conclusion: The High Court had jurisdiction to examine whether the recovery proceedings could lawfully continue in liquidation.

Issue (ii): Whether proceedings under Section 46(2) of the Income-tax Act to recover arrears as if they were land revenue were "legal proceedings" requiring leave under Section 171 of the Indian Companies Act, 1913.

Analysis: Section 171 was construed broadly in light of the winding-up scheme of pari passu distribution in Sections 211 and 230. The Court rejected a narrow ejusdem generis reading that would confine "other legal proceeding" to proceedings analogous to a suit. It held that the recovery machinery under Section 46(2), which involved formal statutory processes through the Collector and powers analogous to civil execution, constituted legal proceedings. Accordingly, once a winding-up order had been made, such proceedings could not be proceeded with without leave of the company court.

Conclusion: The recovery proceedings under Section 46(2) were legal proceedings and required leave under Section 171.

Final Conclusion: The income-tax authorities could not continue the recovery process against the company in liquidation without leave of the winding-up court, and the petition for restraint was therefore allowed.

Ratio Decidendi: In winding-up, recovery machinery invoked by a creditor is subject to the statutory scheme of distribution, and statutory execution-style recovery proceedings are "legal proceedings" that require leave of the company court.

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