Allahabad High Court
Mrs. Nargis Malik vs Official Liquidator on 16 December, 1997
Equivalent citations: [1999]34CLA388(ALL), [1999]95COMPCAS832(ALL)
JUDGMENT A.K. Banerji, J.
1. Application (A-36) has been filed on behalf of Nargis Malik, one of ex-directors of the company, Dany Dairy and Food Engineers Ltd. (in liquidation), praying that the official liquidator be directed to engage a counsel in respect of the company before the Income-tax Tribunal, Delhi, and for certain other directions to the said tax Tribunal.
2. I have heard Sri Manish Nigam and Sri Janardan Sahai, learned counsel for the applicant.
3. Dany Dairy and Food Engineers Ltd. (hereinafter referred to as "the company in liquidation") was ordered to be wound up, vide order dated March 18, 1993, passed by this court and the official liquidator, High Court, has been appointed as the liquidator and the winding-up proceedings are pending before this court. It has been stated in the present application that for the assessment years 1983-84, 1984-85, 1985-86, and 1986-87 income-tax assessments have been made against which the company filed appeals which are pending before the "D" Bench of the Income-tax Tribunal at Delhi. Notice has been issued to the applicant, Nargis Malik, who is one of the directors of the company under Section 179 of the Income-tax Act, holding her personally liable for the payment of demand of Rs. 31,28,904 for the said assessment years. It has been further stated that the company had engaged one C. S. Agarwal, advocate, who was appearing for the company prior to its liquidation, the official liquidator be directed to file vakalatnama on behalf of the company and instruct the said counsel. It has further been prayed that as the Assistant Commissioner and the Tax Recovery Officer (opposite parties Nos. 2 and 3) are threatening to realise the liabilities of the company (in liquidation) from the applicant who has resigned in the year 1990, directions be issued to the said opposite parties not to take coercive proceedings against the applicant.
4. Having heard learned counsel for the applicant and the official liquidator, I am not inclined to allow the prayer made in this application. It is noteworthy that the period, for which the assessment has been made namely, from the years 1983-84 to 1986-87 are much prior to the order of winding-up which as already noted above was passed on March 18, 1993. The appeals were also filed by the company at that time which are pending before the Tribunal much before the winding-up order was passed. Besides, the notice which has necessitated the present application has been sent to the applicant ex-director. The notices which have been annexed as annexures to the affidavit disclose that the same have been issued against the applicant, Nargis Malik, who was one of the directors at the relevant time. It is, therefore, for the said ex-director to appeal before opposite parties Nos. 2 and 3 and to show cause. I see no reason why the official liquidator be called upon to take over the said task to get the ex-director defended by engaging a counsel and bear the expenses. Learned counsel for the applicant has, however, contended that in view of the provisions of Section 457(1)(a) of the Act, the official liquidator in a winding-up proceeding has to defend any suit, prosecution or legal proceedings, civil or criminal on behalf of the company, consequently, it is the duty and the responsibility of the official liquidator to prosecute the said appeals. I am unable to agree. The assessments were made, as already seen above, much before the company had been wound up. Consequently, in my view, the provisions of Section 457(1)(a) of the Act cannot be invoked in the facts of the present case.
5. Learned counsel has then contended that the notice under Section 179 of the Income-tax Act, is illegal since the essential requirements of that section have not been met by opposite parties Nos. 2 and 3 before issuing the said notice. In support of his submission, learned counsel has referred to the decision of the Calcutta High Court in Gadadhar Dey v. TRO [1974] 44 Comp Cas 514 ; [1974] 96 ITR 543, and in the case of Jagdish Jagmohandas Kapadia v. CIT [1990] 183 ITR 143 ; [1991] 2 Comp LJ 140 (Bom). So far as these objections are concerned the court is not called upon in the present application to decide the same. If so advised, the applicant could take the said objections in the appeals pending before the Tribunal.
6. Learned counsel for the applicant then contended that as these liabilities would ultimately come to the company, therefore, the official liquidator should represent the company. I am also not impressed with this argument. Firstly, because proceedings for assessing a company for income-tax on reassessment thereof strictly speaking do not come within the scope of legal proceedings so as to attract the provisions of Section 457(1)(a) as held in Tika Ram and Sons (Private) Ltd. v. CIT [1964] 34 Comp Cas 151 ; [1964] 51 ITR 403 (All) while interpreting a similar expression under Section 446(1) of the Act, Secondly, the dues against the company pertain to the period which being much prior to the winding up order and against the assessments where the company through its directors had already filed appeals which were pending and the official liquidator is not expected to pursue the same on behalf of the directors. The company has huge liabilities having taken very heavy loans from the banks and financial institutions. In comparison to the same the assets are almost nil or negligible. The present application is a device on behalf of the directors to try and shove their responsibility on the official liquidator. This could never be the intention of the Legislature, nor can the provisions of Section 457(1)(a) be interpreted in such manner.
7. That apart, if it is held by the Tribunal that the liability to pay the assessed tax is not that of the directors in their personal capacity but of the company, "in that case it will be open to the company court after the income-tax is determined and its payment demanded from the official liquidator to decide and determine whether the same should be accepted as a lawful liability on the funds of the company (in liquidation) as observed by the Supreme Court in S.V. Kondaskar, Official Liquidator v. V.M. Deshpande, ITO [1972] 42 Comp Cas 168 ; [1972] 83 ITR 685.
8. In the application further prayers have been made to direct the Income-tax Tribunal to dispose of the appeals expeditiously and to stay the coercive proceedings against the applicant. These prayers in my view are misconceived and cannot be allowed.
9. As a result, this application appears to be misconceived and is rejected as such.