Court sets aside order, grants balance amount after tax liability deduction. No costs awarded.

The court allowed Application No. 421 of 1974, setting aside the third respondent's order dated November 30, 1973. Consequently, the fourth respondent is entitled only to the balance amount after the income-tax liability of Rs. 10,853.55 is met. Applications Nos. 461 and 462 of 1973 were ordered accordingly, with no order as to costs.

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Issues Involved:
1. Whether the amount of Rs. 20,542.50 is still an asset of the company.
2. Whether the third respondent acted in conformity with section 555(7)(b) of the Companies Act, 1956.
3. Whether the income-tax department's claim should be satisfied before any payment to the contributory.

Detailed Analysis:

1. Whether the amount of Rs. 20,542.50 is still an asset of the company:
The court examined the relevant sections of the Companies Act, 1956, including sections 511, 512(3), and 555. Section 555 requires the liquidator to deposit unclaimed dividends and undistributed assets into the company's liquidation account. The court referred to key case laws such as Spence v. Coleman [1901] 2 KB 199 (CA) and Hari Prasad Jayantilal and Co. v. V. S. Gupta, Income-tax Officer [1966] 59 ITR 794 (SC), which clarified that unclaimed dividends and undistributed assets remain the assets of the company until they are paid out. The court concluded that the deposited amount does not cease to be an asset of the company merely because it is earmarked for a contributory. It retains its character as a company asset until the payment is made to the contributory.

2. Whether the third respondent acted in conformity with section 555(7)(b) of the Companies Act, 1956:
Section 555(7)(b) allows the Central Government to order payment if satisfied, either on a certificate by the liquidator or otherwise, that the claimant is entitled to the money. The court scrutinized the actions of the third respondent, who sanctioned the payment to the fourth respondent without the necessary certificate from the liquidator. The court noted that both the second and third respondents were aware of the pending income-tax proceedings, which were an impediment to issuing the certificate. The court found that the third respondent's claim of administrative prudence was insufficient and that the statutory obligation under section 555(7)(b) was bypassed without proper justification. Consequently, the order dated November 30, 1973, was set aside due to non-compliance with the statutory requirements.

3. Whether the income-tax department's claim should be satisfied before any payment to the contributory:
The income-tax department argued that the amount in the liquidation account should be considered an asset of the company and that their claim for unpaid taxes should take precedence. The court agreed, citing that the entitlement of the contributory can be defeated by preferential claims such as arrears of revenue to the State. The court held that the fourth respondent would be entitled to the balance amount only after satisfying the company's income-tax liability of Rs. 10,853.55.

Conclusion:
The court allowed Application No. 421 of 1974, setting aside the third respondent's order dated November 30, 1973. Consequently, the fourth respondent is entitled only to the balance amount after the income-tax liability of Rs. 10,853.55 is met. Applications Nos. 461 and 462 of 1973 were ordered accordingly, with no order as to costs.

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