1966 (3) TMI 53 - HC - Companies Law

Court grants liquidator's stay of proceedings to prevent sale of company properties, citing potential prejudice.

The court granted the liquidator's application for a stay of proceedings initiated by the respondent under the Revenue Recovery Act to recover a due ... Winding up – Suits stayed on winding-up order and Avoidance of certain attachments, executions, etc. Issues Involved:1. Application for stay of proceedings under the Revenue Recovery Act.2. Determination of preferential creditor status.3. Power of the court to order a stay under section 518(1)(b) of the Companies Act.4. Applicability of section 446 of the Companies Act to voluntary winding-up.5. Assurance provided by the liquidator.Issue-wise Detailed Analysis:1. Application for Stay of Proceedings under the Revenue Recovery Act:The liquidator applied under section 518(1)(b) of the Companies Act for a stay of proceedings initiated by the respondent under the Revenue Recovery Act to recover Rs. 6,57,367.60 due as cess under section 12 of the Rubber Act. The court found that the facts presented by the liquidator were uncontested and that the declaration of solvency was not disputed. The court was satisfied that allowing the respondent to proceed with the sale of the company's properties would gravely prejudice the winding-up process.2. Determination of Preferential Creditor Status:The respondent claimed to be a preferential creditor, though this was not admitted by the petitioner. The court assumed the respondent's preferential status for the purpose of the judgment but did not decide on this matter. The court noted that, even assuming the respondent's preferential status, special circumstances justified granting a stay to prevent prejudice to the winding-up process.3. Power of the Court to Order a Stay under Section 518(1)(b) of the Companies Act:The court examined whether it had the power to order a stay under section 518(1)(b). It concluded that if the company were being wound up by the court, it could stay the respondent's proceedings under section 446(1) of the Act. The court referenced the Federal Court decision in Governor-General in Council v. Shiromani Sugar Mills, which established that proceedings under the Revenue Recovery Act are legal proceedings within the ambit of section 446. The court reasoned that section 518(1)(b), read with section 446, gave it the power to order a stay.4. Applicability of Section 446 of the Companies Act to Voluntary Winding-Up:The court discussed the applicability of section 446 to voluntary winding-up, referencing case law and legal precedents. It concluded that section 518(1)(b) of the Companies Act allows the court to stay proceedings of the kind mentioned in section 446(1) against a company in voluntary liquidation. The court rejected the argument that the amendment to section 537(2) nullified the Federal Court's decision regarding the applicability of section 446 to proceedings under the Revenue Recovery Act.5. Assurance Provided by the Liquidator:The liquidator assured that no debts, except secured debts and excise duty, would be disbursed before the respondent's claim was determined. The court relied on this assurance in granting the stay, noting that it provided a sufficient safeguard for the respondent. The court stated that the respondent could apply for the stay to be vacated if it apprehended a breach of this assurance or believed the winding-up was being conducted prejudicially to its interests.Conclusion:The court allowed the application and stayed the proceedings by the respondent for the recovery of the cess due from the company. No order as to costs was made. The court emphasized that the respondent could seek relief if it had reasons to believe the liquidator's assurance was breached or if the winding-up was prejudicial to its interests.