Stay of revenue recovery in voluntary winding-up protects orderly realisation of assets and creditor equality

In a members' voluntary winding-up, the court may stay revenue recovery proceedings for cess where those proceedings are treated as legal proceedings within section 446 and the company court powers are extended by section 518(1)(b). The stay is appropriate when immediate coercive recovery would prejudice the orderly realisation of assets and disadvantage other creditors. On the facts, the company's assets were charged, the stock-in-trade was unfinished and unlikely to fetch a fair distress-sale price, and the solvency declaration indicated that creditors would likely be paid in full through the winding-up. The recovery proceedings were therefore restrained to protect the liquidation process.

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Issues: Whether, in a members' voluntary winding-up, the court had power under the Companies Act to stay proceedings taken by the Rubber Board under the Revenue Recovery Act for recovery of cess, and whether a stay ought to be granted on the facts.

Analysis: The application was under section 518(1)(b) of the Companies Act, which enables the court, in a voluntary winding-up, to exercise the powers it could exercise if the company were being wound up by the court. Proceedings under the Revenue Recovery Act were treated as legal proceedings within the scope of section 446(1). The court held that section 518(1)(b), read with section 446, empowered it to stay such proceedings. On facts, the company's assets were under charges, the stock-in-trade was unfinished and could not realise a fair price in distress sale, and immediate recovery would gravely prejudice the winding-up and the interests of other creditors. The declaration of solvency and the overall asset position indicated that all creditors, including the respondent, would likely be paid in full in the winding-up.

Conclusion: The court had power to grant the stay, and the stay was justified on the facts. The issue was answered in favour of the applicant.

Final Conclusion: Recovery proceedings for the cess were restrained so that the assets could be realised in the winding-up in an orderly manner without prejudice to the liquidation process.

Ratio Decidendi: In a voluntary winding-up, the court may stay recovery proceedings under the Revenue Recovery Act where such proceedings fall within section 446 and where immediate coercive recovery would prejudice the winding-up, especially when the assets are sufficient to satisfy creditors in due course.

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