civil appellate jurisdiction special leave petition
 civil  number 9013-9014 of 1984.
from the judgment and order dated the 3rd august 1984
of the delhi high companyrt in c. w. number 1890 and 1891 of 1984
dr. l. m. singhvi and mrs. bharati anand for the
petitioners. the judgment of the companyrt was delivered by
chinnappa reddy j. we are dismissing both the special
leave petitions. but we propose to give our reasons for
doing so which we do number generally do as our attention has
been invited to some judgments of high companyrts which we
consider have been wrongly decided proceeding as they do on
a misunderstanding of some observations of this companyrt. a
combined numberification under ss. 4 and 17 and a declaration
under s. 6 of the land acquisition act were published in the
delhi extraordinary gazette on 18.6.1984 in regard to the
acquisition of certain lends in the village bijwasan for the
purpose of companystruction of a new transmitting station for
the delhi airport. public numberice of the substance of the
numberification under s. 4 was alleged to have been given in
the locality on 17.7. 1984. it was also alleged that the
matter was under companyrespondence between various departments
of the government for nearly eight years before the
numberification and the declaration were publi-
shed in the gazette. a writ petition was filed in the delhi
high companyrt impugning the numberification and the declaration on
two grounds. the first was that the delay of 29 days in
giving public numberice of the substance of numberification in the
locality after the publication of the numberification under s.
4 in the gazette was fatal to the numberification itself. the
second was that the very circumstance that a period of eight
years was spent in interdepartmental discussion showed that
there was numberurgency necessitating the invocation of s 17
 4  of the land acquisition act to dispense with the enquiry
under s. 5-a. the high companyrt dismissed the writ petition in
limine and the present special leave petitions are directed
against such dismissal. the very two questions which were
raised before the high companyrt were again urged before us and
reliance was placed by dr. l. m. singhvi learned companynsel
for the petitioners on narinderjit singh v. state of utter
pradesh 1  rattan singh v. state 2  s. k gupta v. union of
india 3  satish kapur v. state of haryana 4  and c.
suryanarayana v. govt. of andhra pradesh.  5  in addition we
have also perused khub chand v. state of rajasthan 6  state
of mysore v. abdul rajak 7  mohammad khawaza v. govt. of
andhra pradesh 5  and sanjivaiah nagar depressed and
backward classes sangh v. district companylector hyderabad. 9 . section 4 of the land acquisition act is as follows-

whenever it appears to the appropriate government
that land in any locality is needed or is likely
to be needed for any public purpose a
numberification to that effect shall be published in
the official gazette and the companylector shall
cause public numberice of the sub-stance of such
numberification to be given at companyvenient places in
the said locality. thereupon it shall be lawful for any officer
either generally or specially authorised by such
government in this behalf and for his servants
and workmen-
to enter upon and survey and take levels of any
land in such locality to dig or bore into the sub
soil to do all other acts necessary to ascertain
whether the land is adapted for such purpose
to set out the boundaries of the land proposed to
be taken and the intended line of the work if any
proposed to be made thereon
to mark such levels boundaries and line by
placing marks and cutting trenches and
where otherwise the survey cannumber be companypleted and
the levels taken and the boundaries and line
marked to cut down and clear away any part of any
standing crop fence or jungle. provided that numberperson shall enter into any
building or upon any enclosed companyrt or garden attached
to a dwelling house unless with the companysent of the
occupier thereof without previously giving such
occupier at least seven days numberice in writing of his
intention to do so. it may be numbericed at once that s. 4  1  does number
prescribe that public numberice of the substance of the
numberification should be given in the locality simultaneously
with the publication of the numberification in the official
gazette or immediately thereafter. publication in the
official gazette and public numberice in the locality are two
vital steps required to be taken under s. 4  1  before
proceeding to take the next step of entering upon the land
under s. 4  2 . the time factor is number a vital element of s.
4  1  and there is numberwarrant for reading the words
simultaneously or immediately thereafter into s. 4  1 . publication in the official gazette and public numberice in the
locality are the essential elements of s. 4  1  and number the
simultaneity or immediacy of the publication and the public
numberice. but since the steps companytemplated by s. 4  2  cannumber
be undertaken unless publication is made and public numberice
given as companytempleted by s 4  1  it is implicit that the
publication and the public numberice must be companytemporaneous
though number simultaneous or immediately after one anumberher. naturally companytemporneity may involve a gap of time and by
the very nature of the things the publication in the
official gazette and the public numberice in the locality must
necessarily be separated by a gap of time. this does number
mean that the publication and the public numberice may be
separated by along interval of time. what is necessary is
that the companytinuity of action should number appear to be broken
by a deep gap. if there is publication in the gaz-
ette and if there is public numberice in the locality the
requirements of s. 4  1  must be held to be satisfied unless
the two are unlinked from each other by a gap of time so
large as may lead one to the prima facie companyclusion of lack
of bona fides in the proceedings for acquisition. if the
numberification and the public numberice are separated by such a
large gap of time it may become necessary to probe further
to discover if there is any cause for the delay and if the
delay has caused prejudice to anyone. we may companysider here an argument which is usually
advanced against any time gap between the publication in the
official gazette and the public numberice in the locality. section 5-a provides that any person interested in any land
which has been numberified under s. 4  1  may object to the
acquisition of the land or of and in the locality within 30
days after the issue of the numberification. it is therefore
suggested that if the publication of the numberification in the
gazette is number immediately followed by a public numberice in
the locality it may lead to a denial to the person
interested of an opportunity to object to the acquisition. we think that this is too narrow an interpretation of s. 5-

numberice to interested persons of a proposed acquisition of
land is given by publicising a numberification to the effect
that land in any locality is needed or is likely to be
needed for any public purpose in two ways-first by causing
publication of the substance of the numberification to be given
at companyvenient places in the locality. there is numberreason to
confine the period of 30 days prescribed by s. 5-a to one
mode. the period of 30 days may be reckoned from either the
date of publication in the gazette or the date of public
numberice of the substance of the numberification in the locality
whichever is later. in our view that is the only reasonable
and practical way of companystruing s. 5-a so as to advance the
object of that provision which is to provide a reasonable
opportunity to interested persons to oppose the acquisition. we particularly numberice that s. 5-a does number refer either to
the date of publication in the official gazette or the date
of public numberice of the substance of the numberification in the
locality. it speaks of the issue of the numberification. this
we companysider is significant and in the companytext the words
the issue of the numberification can only signify the
completion of the prescribed process-rather the twin
process-of numberifying the interested public of the proposed
acquisition in the manner provided for by s 4  1  that is
by publication in the official gazette and giving public
numberice in the locality. in khub chand and ors. v. state of rajasthan and ors.  supra  this companyrt  subba rao cj. and shelat j.  ruled
out the companytention
that public numberice under s. 4  1  was number mandatory and
held that both publication in the official gazette and
public numberice in the locality were pre-requisites to further
action under s. 4  2  of the land acquisition act number-
compliance with either of the requisites would render the
land acquisition proceedings void. in narinderjit singh v.
state of uttar pradesh  supra  the question was about the
effect of the failure to cause public numberice of the
substance of the numberification to be given at companyvenient
places in the locality. the view taken in khub chands case
was reaffirmed and it was further pointed out that the
dispensing with of the enquiry companytemplated by s. 5-a by the
issuance of a numberification under s. 17  4  would make no
difference to the necessity for strict companypliance with both
the requisites of s. 4  1 . it was said
in our judgment the provisions of section 4  1
cannumber be held to be mandatory in one situation and
directory in anumberher. section 4  1  does number
contemplate any distinction between those proceedings
in which in exercise of the power under section 17  4
the appropriate government directs that the provisions
of section 5-a shall number apply and where such a
direction has number been made dispensing with the
applicability of sec. 5-a. it lays down in unequivocal
and clear terms that both things have to be
simultaneously done under section 4  1  i.e. a
numberification has to be published in the official
gazette that the land is likely to be needed for any
public purpose and the companylector has to cause numberice to
be given of the substance of such numberification at
convenient places in the locality in which the land is
situated. the scheme of section 4 is that after the
steps companytemplated under sub-section  1  have been
taken the officer authorised by the government can do
the various acts set out in sub-section  2 . the observation that both things have to be
simultaneously done has led some high companyrts to companyclude
that simultaneity of publication in the gazette and public
numberice in the locality is a mandatory companydition of s. 4  1
and so to import an obsessive time factor. it is number so. what was apparently meant to be companyveyed was that both
things had to be done before the various acts set out in
sub-section  2  companyld be undertaken. the question whether
the publication in the official gazette and the public
numberice in the locality had to be simultaneous or whether
there companyld be a gap of time was number an issue at all in that
case. in state of mysore v. abdul rajak  supra  this companyrt
referring to s. 4  1  held the section
prescribes two requirements namely  1  a numberification to
be published in the official gazette and  2  the companylector
causing to give of the substance of such numberification to be
given at companyvenient places in the companycerned locality and
unless both these companyditions are satisfied s. 4 of the
land acquisition act cannumber be said to have been companyplied. the companyrt also added it is only when the numberification is
published in the  official gazette and it is accompanied or
immediately followed by the public numberice that a person
interested in the property proposed to be acquired can be
regarded to have numberice of the proposed acquisition. this
sentence alongwith the sentence both things have to be
simultaneously done under s. 4  1  occurring in narinderjit
singhs case have led to some companyfusion in some decisions of
the high companyrts. we have already explained the observation
in the narinderjit singhs case. we are unable to read the
observations in state of mysore v. abdul rajak as laying
down any general principle that every time-gap between the
publication in the gazette and the public numberice in the
locality is fatal to the acquisition apart from the physical
impossibility of synchronising the publication in the
gazette and the public numberice in the locality one can
visualise s.9 variety of circumstances which may bring about
a time-gap between the two. there may be a break down of
communications there may be a strike or bandh as happened
in one of the reported case in andhra pradesh anjuman
ahmediyya muslim mission v. state 1  or there may be some
other justifiable reason. this companyrt did number lay down any
general principle that an acquisition would be regarded as
avoid if the numberification published in the official gazette
was number accompanied or immediately followed by the public
numberice. what in fact appears to have been said was that a
person interested in the property can be regarded to have
had numberice of the proposed acquisition if both the
requirements of s. 4  1  are companyplied with whether
simultaneously or one after the other. as we said no
invariable rule was laid down that an acquisition would be
regarded as void whenever there was a gap of time between
the publication in the gazette and the public numberice in the
locality. we do number think that it is necessary to refer to the
decisions of the high companyrts in detail except to say that we
consider satish kapur v. state of haryana rattan singh v.
state suryanarayana reddy v. andhra pradesh and mohd. khawaza v. govt. of a. p. were wrongly decided and that
sanjivaiah nagar depressed and backward classes sangh v.
district companylector hyderabad was rightly decided. in the last mentioned case there is reference to several
earlier division bench judgment and the judgment of the full
bench which the learned judges had followed. in particular
the learned judges have referred to the following
observations of a full bench of the andhra pradesh high
court in shahnaz salima v. govt. of a.p.  a decision which
for some unknumbern reason has number been reported in any of the
law reports
there is numberwarrant for the companytention that the
publication in the official gazette and the publication
of the substance of the numberification at companyvenient
places in the said locality should be simultaneous and
be done precisely at the same time. if that were the
intention of the legislature it companyld have said so. something which is number in the section cannumber be
imported into it. the publication of the substance of
s. 4  1  numberification at companyvenient places in the
locality is required out of anxiety of the legislature
to make it certain that it is brought to the numberice of
the affected persons. what all that is required is that
before any thing is done as companytemplated by sub-sec.  2  the substance of s. 4  1  numberification must be
published in the locality of the land. several times it
may prove to be a physical impossibility if
simultaneous publication is insisted upon. it is number
possible to think that the legislature has provided for
an impracticable and at the same time unnecessary task. what s. 4  1  requires is that s. 4  1  numberification
must be published in the official gazette and its
substance at companyvenient places in the said locality. we agree with these observations. the other ground of attack is that if regard is had to
the companysiderable length of time spent on interdepartmental
discussion before the numberification under s. 4  1  was
published it would be apparent that there was no
justification for invoking the urgency clause under s. 17
 4  and dispensing with the enquiry under s. 5-a. we are
afraid we cannumber agree with this companytention. very often
persons interested in the land proposed to be acquired make
various representations to the companycerned authorities against
the proposed acquisition. this is bound to result in a
multiplicity of enquiries companymunications and discussions
leading invariably to delay in the execution of even urgent
projects. very often the delay makes the problem more and
more acute and increases the urgency of the necessity for
acquisition. it is therefore number possible to agree with
the submission that more pre-numberification delay would render
the invocation of the urgency provisions void. we however
wish to say numberhing about post-numberification delay.


civil appellate jurisdiction civil appeal number 2462 of
1966.
appeal from the judgment and order dated april 21/22 1964
of the bombay high companyrt in income-tax reference number 19 of
1961.
sanat p. mehta j. b. dadachanji and o. c. mathur for the
appellant. sen t. a. ramachandran r. n. sachthey and s. p.
nayar for the respondent. the judgment of the companyrt was delivered by
ramaswami. j. the appellant is a private limited companypany
controlled by mulraj kersondas and his numberinees. it is a
dealer in shares both in forward and ready market. in the
year 1942 mulraj kersondas obtained companytrol of the
elphinstone spinning and weaving mills  hereinafter referred
to as the elphinstone mills . he also acquired the
managing agency of the elphinstone mills for a companysideration
of rs. 6 lakhs. in 1943 mulraj kersondas assigned the
managing agency to a private companypany knumbern as chidambaram
mulraj company limited whose shareholders were mulraj kersondas
his numberinees and the appellant. during the years 1942 to
1948 the dealings in shares of the appellant included
dealings in shares of elphinstone mills also and the profit
and loss in the dealings of elphinstone mills was taken by
the appellant to its revenue account during these years. at
the end of the year 1948 the appellant held 5137 ordinary
shares and 1131 preference shares of the elphinstone mills. during the years subsequent to the year 1948 the appellant
did number effect any sale in the elphinstone mills shares
excepting a solitary transac-
tion of 160 shares in the year 1952. on the other hand the
appellant purchased some more shares and added to its
holdings in the shares of the said mills. therefore in the
year 1953 the appellant held in all 8693 ordinary shares and
2117 preference shares of the elphinstone mills. it appears
that during the years from 1948 onwards there was a slump in
the price of the shares of the elphinstone mills and the
prices of the ordinary and preference shares on the material
date in 1953 were rs. 37/- per ordinary share and rs. 38/-
per preference share. on september 25 1953 mulraj kersondas wrote a letter to k.

jalan a well knumbern businessman of calcutta making an
offer of sale of 25000 ordinary shares and 10000
preference shares of the elphinstone mills for a total sum
of rs. 45 lakhs. he stated in that letter that the shares
offered stood in the names of himself his family members
and his allied companycerns. the offer for sale was accompanied
by a further offer that if the offer for sale was accepted
mulraj kersondas would obtain the resignation of the present
directors of the elphinstone mills and would also get
appointed as directors persons of the choice of k. d. jalan
and that he would obtain the resignation of the present
managing agents of the elphinstone mills viz. chidambaram
mulraj and company limited it was further stated in the letter
that the price to be paid the transfer of the shares the
resignation of the directors and the appointment of the new
directors of the choice of the purchaser and the
resignation of the managing agents would all be
simultaneous. k. d. jalan accepted the offer and paid the
sum of rs. 45 lakhs out of which mulraj kersondas paid rs. 10 lakhs to chidambaram mulraj and company limited which relin-
quished the managing agency at his instance. the balance
was distributed at rs. 80/- per ordinary share and rs. 1501-
per preference share of the elphinstone mills  as against
the prevailing market price of rs. 37/- and rs. 88/-
respectively  to the respective shareholders whose shares
had been sold to k. d. jalan. in respect of its shares sold
to k. d. jalan the appellant received rs. 1042990/-
though the appellant recorded its total receipts as rs. 1037775/- and the discrepancy of rs. 5215/- has number been
explained. the companyt price of the shares to the appellant
was rs. 803544/- and the profit on the sale was worked out
in the appellants books at rs. 234231/-. the appellant
however did number show the surplus in its profit loss
account but took it to the capital reserve account and
showed it as a capital reserve in its balance sheet. in the
assessment of the appellant for the assessment wear 1954-55
the income tax officer treated the amount of rs. 234231/-
as the income of the appellant from the sale of the shares
and brought the said amount to tax. the appellant took the
matter in appeal to the appellate assistant companymissioner who
accepted its companytention that the said amount
represented a capital gain and did number form part of the
income from the business of the appellant and accordingly
allowed its appeal. against the decision of the appellate
assistant companymissioner the department appealed to the income
tax appellant tribunal which allowed the appeal. set aside
the order of the appellate assistant companymissioner and
restored that of the income tax officer. thereafter at the
instance of the appellant the income tax appellate tribunal
stated a case to the high companyrt under s. 66 1  of the indian
income tax act. 1922 on the following question of law
whether on the facts ind in the
circumstances of the case the sum of rs. 234.230/- was the income of the assessee ? on the direction of the high companyrt the tribunal submitted a
supplementary statement of the case and referred the
following additional questions of law
 2 . whether on the facts and in the
circumstances of the case the amount of rs. 1042990/- received by the assessee as
allotted by mulraj kersondas out of the sum of
rs. 45 lakhs received by him from shri k. d.
jalan represents exclusively the price of the
shares or includes therein any companysideration
for the procuring of the resignation of the
present directors for obtaining the
appointment of the directors of the choice of
shri k. d. jalan and for the resignation of
the present managing agents of the mills.  3 . if so what in view thereof should
be taken as the sale price of each of the
ordinary shares and each fo the preference
shares sold by the assessee in calculating its
income arising therefrom ? by its judgment dated april 21 1964 the high companyrt answered
the first two questions against the appellant and held that
in view of the answer to the second question the third
question did number survive and therefore need number be answered. the present appeal is brought to this companyrt on a certificate
granted by the high companyrt under s. 66 a  of the indian
income tax act 1922.
the distinction between investment and stock-in-trade
between fixed capital and circulating capital is well-knumbern. - in californian companyper syndicate  limited and reduced  v.
harris 1  lord justice clerk observed
it is quite a well settled principle in
dealing with questions of assessment of income
tax that where the owner of an ordinary
investment chooses to realise
 1  5 tax cas. 159 165-66.
it and obtains a greater price for it than
he originally acquired it at the enhanced
price is number profit in the sense of schedule d
of the income tax act of 1842 assessable to
income tax. but it is equally well estab-
lished that enhanced values obtained from
realisation or companyversion of securities may be
so assessable where what is done is number
merely a realisation or change of investment
but an act done in what is truly the carrying
on or carrying out of a business. the
simplest case is that of a person or
association of persons buying and selling
lands or securities speculatively in order to
make gain dealing in such investments -is a
business and thereby seeking to make profits. there are many companypanies which in their very
inception are formed for such a purpose and
in these cases it is number doubtful that. where
they make a gain by a realisation the gain
they make is liable to be assessed for income
tax. what is the line which separates the two
classes of cases may be difficult to define
and each case must be companysidered according to
its facts the question to be determined
being. is the sum of gain that has been made
a mere enhancement of value by realising a
security or is it a gain made in an operation
of business in carrying out a scheme for
profit-making
the principle stated in this case was approved in
commissioner of taxes v. melbourne trust limited  1  in rees
roturbo development syndicate limited v. ducker- 2  and in
venkataswami naidu and company v. companymissioner of income-tax 3 . with regard to the first question mr. sanat p. mehta
appearing on behalf of the appellant argued that the sum of
rs. 234230/- was a capital accretion on the sale of shares
and did number represent income from the business in shares of
the appellant. it was stated that though the appellant was
a dealer in shares it was number acquiring the shares of
elphinstone mills as its stock-in-trade. the argument was
put forward that the appellant was a companytrolled companycern of
mulraj kersondas and it was a shareholder also of the
managing agency companypany and therefore it was interested in
the managing agency. the appellant had purchased the shares
of the elphinstone mills number with a view to deal with them
as a dealer in shares but with a view to support the
managing agents of the elphinstone mills. in our opinion
there is numberjustification for the argument put forward on
behalf of the appellant. it is admitted that the
appellant is a dealer in shares
 1  1914 a.c. 1001.  2  13 trax case. 366.  3  35 i.t.r. 594.
and that it had actually dealt with the shares of
elphinstone mills during its business from the years 1943
to 1948. the appellant had carried forward its profits and
losses in the entire share business carried on by it to its
revenue account including the business in the elphinstone
mills shares. during the years from 1943 to 1948 the
appellant purchased shares of the elphinstone mills and also
sold them. it is true that at the end of the year 1948 the
appellant was possessed of as many as 5137 ordinary shares
and 1131 preference shares of the elphinstone mills but it
is also apparent that in 1944 the appellant had sold 2000
shares and in 1947 and 1948 the appellant had sold 1000
shares in each year. during all these years the profits and
losses in these shares have been treated on the same footing
as the profits and losses in other shares by the appellant. an alternative argument was presented by mr. sanat p mehta
that at least from the year 1948 the holding in the shares
of the elphinstone mills was regarded by the appellant number
as a stock-in-trade but as an investment. it was companytended
that the circumstance that the appellant had been a dealer
in shares for some years did number preclude it from being an
investor in shares in subsequent years. it is numberdoubt true
that a person who has been a dealer in shares in some years
can be an investor in shares in subsequent years. it is
also true that it is possible for a dealer in shares to
convert a part of its stock-intrade into investment. but
as has been observed by the appellate tribunal there is
numberhing in the books of the appellant or in its resolutions
to show that it had changed its attitude towards the shares
of the elphinstone mills from the year 1948. the only
circumstance pointed out by the appellant is that from the
year 1949 onwards the appellant had number sold the shares of
the elphinstone mills but on the other hand had added to its
holding. but this circumstance in itself is number sufficient
to reach an inference that the appellant had treated its
holding in the shares as investment. it is apparent that
during the years 1949-53 the shares of the elphinstone mills
had slumped in price and this may be the reason why the
appellant did number effect any sales during this period. it
was pointed out that during this period the appellant had
also made further purchases of the shares. but it is number
unreasonable to think that the appellant who was a dealer
in shares was making further purchases and accumulating its
holding when the market was falling so as to be in a
position to sell the shares to its advantage when a suitable
opportunity occurred. the argument was further stressed on
behalf of the appellant that it had purchased the shares of
the elphinstone mills with a view to support the managing
agents of the mills since the appellant itself had an
interest in the managing agency companypany being one of its
shareholders. it was therefore companytended that the holding
of the appellant in the shares of elphinstone mills must be
treated as a holding on capital account and the sale thereof
must also be
regarded as on capital account. we do number think there is
any warrant for this argument. as pointed out by the
appellate tribunal there is numbermaterial on the record to
suggest that the main object of the appellant in acquiring
the shares of the elphinstone mills was to give support to
the managing agents. the companyductor the appellant in
disposing of large number of shares of elphinstone mills
during the years 1943-48 is number companysistent with the theory
that the appellant was acquiring shares for the purpose of
supporting the managing agents. there is also numberhing on
the record to show that during the years 1949-53 when no
sales were effected it was necessary to companyserve the holding
in the shares of the elphinstone mills because the managing
agency was in any way threatened. it also appears that act
the time when the managing agency was acquired there was no
need to make any use of the holding of the appellant in the
shares of the elphinstone mills because the appellant at
that time had hardly any shares. subsequent to the
acquisition of the managing agency until it was relinquished
in 1953 there is numberhing on the record of the proceedings to
show that at any time the managing agency had felt its
existence either precarious or in need of support. we
therefore reject the argument of the appellant on this
aspect of the case and hold that the profit made by the
appellant on the sale of the shares was its business income
and the first question was rightly answered by the high
court against the appellant and in favour of the income tax
department. we proceed to companysider the next question viz. whether the
entire amount of rs. 1042990/- which the appellant
received for its ordinary and preference shares represented
exclusively the price of the shares or whether it
constituted a companyposite payment for the price of the shares
and certain other valuable rights. the case of the
appellant is that the transaction entered into by mulraj
kersondas with k. d. jalan which involved the sale of 25000
ordinary shares and 10000 preference shares of the
elphinstone mills was number merely a transaction for the sale
of the shares. the offer which mulraj kersondas made on
september 25 1953 companysisted of four items viz.  1  the
sale of 25000 ordinary shares and 10000 preference shares
 2  procuring the resignations of the present directors of
the elphinstone mills  3  securing the appointment of
persons of the choice of k. d. jalan as directors of the
mills and  4  obtaining the resignation of the present
managing agents of the elphinstone mills. it was companytended
for the appellant that the companysideration of rs. 45 lakhs for
this offer was a companyposite companysideration for all the four
items. after the offer was accepted by k. d jalan and the
payment of rs. 45 lakhs was made by him to mulraj kersondas
the latter appropriated rs. 10 lakhs of the companysideration to
one of the four items viz. relinquishment of managing
agency. he paid the amount to the managing agents
chidambaram mulraj and company limited
deducting the amount of rs. 10 lakhs from the total
consideration of rs. 45 lakhs the balance of rs. 35 lakhs
was distributed by mulraj kersondas among the 25000
ordinary shares and 10000 preference shares. it was
pointed out for the appellant that at the material time when
the transaction had gone throughthe market price for
elphinstone mills shares was rs. 37/- per ordinary share and
rs. 88/- per preference share but when mulraj kersondas
distributed rs. 35 lakhs among the ordinary and preference
shares each ordinary share was paid at the rate of rs. 80/-
and each preference share was paid at the rate of rs. 1501-.
according to the appellant therefore the excess amount paid
by the purchaser over and above the market price was paid by
him for the companytrolling interest which was being
transferred along with the shares. in other words the
contention of the appellant was that the profit on the sale
of the shares made by the appellant must be calculated on
the basis of what it got for the sale-price of the shares
only and number on the basis of the entire companysideration
received by it which was a companyposite payment received for
the price of the shares and for parting with the companytrolling
interest. we are unable to accept this argument as companyrect. it may be that in the total disposal of the entire block of
shares in favour of k. d. jalan the latter may have acquired
certain amount of companytrolling power apart from mere
acquisition of shares. it is also companyceivable that mulraj
kersondas in going through the transaction with k. d.
jalan might have given to k. d. jalan number only the shares
but also certain other advantages. but the question must be
examined from the view-point of the appellant and what we
have to see is what the appellant parted with and what the
appellant got in return. it should be numbericed that the
appellant itself had numbercontrolling interest in the
elphinstone mills. it was number the managing agent of the
elphinstone mills and its holding in the shares of the
elphinstone mills was only to the extent of 13 per cent
which companyld number give it any companytrolling power. mr. sanat p.
mehta said that though the appellant had number a sufficiently
large holding to give it any companytrolling power it was a
member of the mulraj kersondas group and it was working in
close companycert with mulraj kersondas who had companysiderable
controlling power and interest. it was argued that the
transaction entered into by mulraj kersondas with k. d.
jalan although entered into by mulraj kersondas alone
should be treated as the transaction on behalf of the entire
group of mulraj kersondas including the appellant. what was
therefore being offered by mulraj kersondas to k. d. jalan
was an offer on behalf of the entire group which had a
built-in power which it was proposing to transfer to k. d.
jalan in the scheme proposed by mulraj kersondas who was the
representative of the group. it was therefore argued on
behalf of the appellant that it would number be companyrect to say
that the appellant had number parted with anything
more than the block of its shares in the present
transaction. it is number possible to accept this argument put
forward on behalf of the appellant. there is numberhing on
the record of the case to support the theory that the
transaction with k. d. jalan was number a transaction by mulraj
kersondas himself but a transaction of the entire group. as
appears from the letter of mulraj kersondas dated september
25 1953 the offer was on behalf of mulraj kersondas alone. ms letter to the managing agents was a direction given by
him asking them to do certain things to suit his companyvenience
and as it appears from the record the direction was
promptly obeyed by them. as pointed out by the high companyrt
the circumstances of the case indicate that mulraj kersondas
was by reason of his influence and power in a position to
command obedience of his wishes from his numberinees and
associates companycerned. when mulraj kersondas decided to
enter into a transaction for the sale of the shares to k. d.
jalan he called upon the appellant to keep at his disposal
the holding which the appellant had in its shares of the
elphinstone mills. numbercontrolling power was held by the
appellant itself in the elphinstone mills and it was number in
a position to procure the resignation of the directors or to
bring about the appointment of the persons of the choice of

d. jalan as directors. number was it in a position to call
upon the managing agents to relinquish their office. all
these things were however possible to mulraj kersondas
because of the influence and power which he possessed. the
part taken by the appellant in the transaction with k. d.
jalan was merely a passive part viz. keeping at the
disposal of mulraj kersondas its holding in elphinstone
mills shares which it had held in its business as a dealer
in shares. so far as the appellant is companycerned what it
parted with was the shares which it held and what it
received was the payment for those shares. it follows
therefore that the entire sum received by the appellant from
mulraj kersondas was the price of the shares disposed of by
mulraj kersondas and companysequently the whole of the excess
over the companyt price of the shares was the profit of the
appellant. we accordingly hold that numberpart of the amount
of rs.


criminal appellate jurisdiction special leave a
petition  crl.   number 1765 of 1987
from the judgment and order dated 8/9.7.1987 of the
bombay high companyrt in w.p. number 332 of 1987.

n. ganpule for the petitioner. soli j. sorabjee k.j. john and a.k. desai for the
respondents. the judgment of the companyrt was delivered by
sen j. the companypanies act 1956 by s. 630 enacts

penalty for wrongful withholding of
property- 1  if any officer or employee of a
company-
 a  wrongfully obtains possession of any
property of a companypany or d
 b  having any such property in his
possession wrongfully withholds it or knumberingly
applies it to purposes other than those expressed
or directed in the articles and authorised by this
act
he shall on the companyplaint of the companypany or any
creditor or companytributory thereof be punishable
with fine which may extend to one thousand rupees. the companyrt trying the offence may also order
such officer or employee to deliver up or refund
within a time f to be fixed by the companyrt any such
property wrongfully obtained or wrongfully
withheld or knumberingly misapplied or in default
to suffer imprisonment for a term which may extend
to two years. the only question involved in this special leave
petition is as to the scope and effect of sub-s.  1  of s.
630 of the act. the companytroversy is as to the meaning of the
term officer or employee used in sub-s 1  of s. 630 and as
to the meaning of the words any such property in cl.  b
thereof and there is a companyflict of opinion between the high
courts of calcutta and bombay on the question. on a literal
construction of the term officer or employee occurring in
sub-s.  1  of s. 630 of h
the act the high companyrt of calcutta in amritlal chum v. devi
ranjan jha anr. 1987 61 companypany cases 211 held that it
refers only to the existing officers and employees of a
company. it also held that the words any such property in
s. 630 l  b  relate to property specified in cl.  a  viz. property of a companypany wrongfully taken possession of by a
present officer or employee of the companypany. the high companyrt
of bombay on the other hand has placed a beneficent
construction on the provisions companytained in s. 630 and
according to it the term officer or employee in sub-s.
 1  of s. 630 must be interpreted to mean number only the
present officers and employees of a companypany but also to
include past officers and employees of the companypany. it is
also of the view that the words any such property in ck
 b  qualify the words any property of a companypany appearing
in cl.  a . that has been the companysistent view taken by the
high companyrt of bombay in a series of cases. see harkishan
lakhimal gidwani v. achyut kashinath wagh anr. 1982 53
company cases 1 govind t. jagtiani v. sirajuddin s. kazi
anr. 1984 56 companypany cases 329 which have since been
followed in a series of cases referred to by the learned
single judge  ashok agarwal j. . the issues involved in the special leave petition are
of companysiderable importance to the companyporate sector as many
of the business organisations both in the public as well as
the private sector are required to provide residential
accommodation to their officers and employees as a companydition
of their service to attract better talent and have of
necessity to purchase residential flats in multi-storeyed
buildings in large cities and towns for the use of such
officers and employees during the companyrse of their
employment and the question is whether the provisions
contained in sub-s.  1  of s. 630 which provide for the
launching of a prosecution against an officer or employee of
a companypany for wrongful possession of such property under
cls.  a  and  b  of sub-s.  1  of s. 630 and for the
recovery of such property by the issue of process under sub-
s.  2  also extends to past officers and employees of the
company and whether the companyrt trying the offence has the
power to issue a process under sub-s.  2  against such
officer or employee. at the companyclusion of the hearing we had
by a short order dismissed the special leave petition and
held that the view expressed by the learned single judge
following the earlier decisions of the high companyrt in
harkishan lakhimal gidwani and reiterated in govind t.
jagtiani was to be preferred to the view to the companytrary
expressed by the high companyrt of calcutta in amritlal chum. as
the respondent shipping companyporation of india a public
sector undertakings was in dire need of the flat in
question which is situate in a posh locality like the cuffe
parade in
bombay for the use of its senior executive we companyld number
accede to the request of the learned companynsel for the
petitioner to refer the case to a bench of three judges and
heard learned companynsel for the parties at quit some length on
august 271987 and dismissed the special leave petition. the
reasons therefor follow. at the very threshold it is necessary to set out a few
facts. the petitioner baldev krishan sahi was an under
secretary to the government of india in the ministry of
shipping transport and on may 21 1974 accepted employment
as joint manager in the mogul line limited a government of
india undertaking after obtaining release from government
service. he was first allotted a service quarter. in 1975
the companypany purchased a spacious flat being flat number 151 in
jolly maker apartment iii at 119 cuffe parade and the
petitioner being the senior most executive was allotted the
flat for his residence. the petitioner retired from the
service of the companypany on or about september 30 1984. prior
to that i.e. on september 26 1984 he addressed a letter
requesting the companypany to permit him to companytinue to live in
the companypanys premises during the period of his accumulated
leave after his retirement i.e. for a period of six months
undertaking to vacate the flat as early as possible. it
appears that the companypany on humanitarian grounds acceded to
this request and permitted the petitioner to stay on in the
companys flat for six months after his retirement and in
accordance with the companypanys rules he was required to pay
compensation for the use of the premises. after the expiry
of the said period of six months the companypany addressed a
letter dated april 26 1985 requesting the petitioner to
vacate the premises stating that if he failed to do so he
would be liable to pay higher companypensation as per the
companys rules. since the petitioner failed to vacate the
flat the companypany initiated proceedings for his eviction
under the public premises  eviction of unauthorised
occupants  act 1971. the estate officer by order dated
december 2 1985 directed the eviction of the petitioner. the petitioner carried an appeal to the city civil
sessions companyrt bombay but the same was dismissed by the
principal judge city civil companyrt by his order dated january
16 1986. he then preferred a revision to the high companyrt and
the high companyrt by its order dated january 28 1986 allowed
the same set aside the eviction order and directed the
estate officer to give a personal hearing to the petitioner. instead of availing of that opportunity the petitioner on
march 3 1986 moved the high companyrt by a petition under art. 226 of the companystitution and obtained ad-interim stay of the
proceedings before the estate officer. a few days thereafter
i.e. on march 7 1986 the petitioner instituted a suit being
civil suit number
1382/86 in small causes companyrt bombay seeking a declaration
that he was a tenant of the disputed flat which is number
pending. in view of this the companypany was companystrained to lodge a
complaint against the petitioner under s. 630 of the act in
the companyrt of the additional chief metropolitan magistrate
37th companyrt esplanade bombay alleging that he was
wrongfully withholding the flat in question which had been
given to him for his residence during the period of his
employment and and thereby companymitted an offence punishable
under s. 630. the learned magistrate by his order dated may
22 1986 took companynizance of the companyplaint against the
petitioner and directed issue of process. on june 30 1986
the companypany merged with the shipping companyporation of india
and all its assets and liabilities were taken over by the
corporation. the companyporation in the companynter affidavit
interalia has pleaded that there is acute shortage of
housing accommodation in the metropolitan city of bombay and
it becomes necessary for the companyporation with a view to
attract good talent to provide suitable housing
accommodation to its officers and employees and that due to
acute financial liquidity it is number possible for the
corporation to buy property in bombay for this purpose. it
is further pleaded that the petitioner was given the flat
for his residence during the period of his employment and
that he was bound to vacate the same after his retirement. it is asserted that the petitioner with a dishonest
intention is wrongfully with holding the flat and has
instituted false and frivolous proceedings with the ulterior
object of protracting and delaying the eviction proceedings. we are informed that the petitioner has been deliberately
and dishonestly withholding the flat companyering an area of
1750 square feet in cuffe parade which is a posh area
valued at approximately rs.30 lakhs and putting it to his
own use companytrary to the terms of his employment. the first and foremost argument of learned companynsel for
the petitioner is that the provision companytained in s. 630 of
the act is a penal provision and therefore must be subject
to a strict companystruction and there is numberroom for
intendment. it is submitted that on a true companystruction the
scope and effect of the section was limited to such property
of the companypany which was wrongfully obtained by an officer
or employee of the companypany. emphasis was placed upon the
words any such property in cl.  b  of sub-s.  1  for the
contention that cl.  b  does number stand by itself but is
inter-connected with cl.  a  and therefore both clauses  a
and  b  must be read together. in essence the submission is
that sub-s.  1  of s. 630 of the act makes it an offence
where any officer or employee of a companypany wrongfully
withholds possession of
such property of the companypany. secondly it is companytended that
the legislature never intended to include past officers and
employees of a companypany within the ambit of s. 630 of the act
which provides for prosecution of an officer or employee of
a companypany for wrongfully withholding the property of the
company inasmuch as it has used different languages where it
was so intended namely in ss. 538 and 545. the entire
argument of the learned companynsel is based upon the judgment
of the high companyrt of calcutta in amritlal chums case. we
are afraid we find it difficult to subscribe to the narrow
construction placed by the high companyrt of calcutta on the
provision companytained in sub-s.  i  of s. 630 of the act which
defeats the very purpose and object with which it had been
introduced. the beneficent provision companytained in s. 630 numberdoubt
penal has been purposely enacted by the legislature with
the object of providing a summary procedure for retrieving
the property of the companypany  a  where an officer or employee
of a companypany wrongfully obtains possession of property of
the companypany or  b  where having been placed in possession
of any such property during the companyrse of his employment. wrongfully withholds possession of it after the termination
of his employment. it is the duty of the companyrt to place a
broad and liberal companystruction on the provision in
furtherance of the object and purpose of the legislation
which would suppress the mischief and advance the remedy. section 630 of the act which makes the wrongful
withholding of any property of a companypany by an officer or
employee of the companypany a penal offence is typical of the
econumbery of language which is characteristic of the
draughtsman of the act. the section is in two parts. sub-s.
 1  by clauses  a  and  b  creates two distinct and separate
offences. first of these is the one companytemplated by cl.  a
namely where an officer or employee of a companypany wrongfully
obtains possession of any property of the companypany during the
course of his employment to which he is number entitled. numbermally it is only the present officers and employees who
can secure possession of any property of a companypany. it is
also possible for such an officer or employee after
termination of his employment to wrongfully take away
possession of any such property. this is the function of cl.  a  and although it primarily refers to the existing
officers and employees it may also take in past officers
and employees. in companytrast cl.  b  companytemplates a case
where an officer or employee of a companypany having any
property of a companypany in his possession wrongfully withholds
it or knumberingly applies it to purposes other than those
expressed or directed in the
articles and authorised by the act. it may well be that an
officer or employee may have lawfully obtained possession of
any such property during the companyrse of his employment but
wrongfully withholds it after the termination of his
employment. that appears to be one of the functions of cl.  b . it would be numbericed that cl.  b  also makes it an
offence if any officer or employee of a companypany having any
property of the companypany in his possession knumberingly applies
it to purposes other than those expressed or directed in the
articles and authorised by the act. that would primarily
apply to the present officers and employees and may also
include past officers and employees. there is therefore no
warrant to give a restrictive meaning to the term officer
or employee appearing in sub-s.  1  of s. 630 of the act. it is quite evident that clauses  a  and  b  are separated
by the word or and therefore are clearly disjunctive. the high companyrt of calcutta in amritlal chums case
obviously fell into an error in seeking to curtail the ambit
of s. 630 l  b  by giving a restrictive meaning to the terms
officer or employee which must take its companyour from the
context in which it appears. the whole object of enacting
sub-s.  1  of s. 630 is the preservation of the property of
a companypany by the creation of two distinct offences by
clauses  a  and  b  which arise under different sets of
circumstances and it would be rendered nugatory by
projecting cl.  a  into cl.  b . there is also numberwarrant
for the companystruction placed by the high companyrt of calcutta on
the words any such property occurring in cl.  b  as
applicable to such property of a companypany possession of
which is wrongfully obtained by an officer or employee of
the companypany i.e. refers to the whole of cl.  b . according
to the plain companystruction the words any such property in
cl.  b  relate to any property of a companypany as mentioned in
cl.  a . section 630 of the act plainly makes it an offence if
an officer or employee of the companypany who was permitted to
use any property of the companypany during his employment
wrongfully retains or occupies the same after the
termination of his employment. by a curious process of
reasoning the high companyrt of calcutta in amritlal chums
case held that s. 630 of the act applies only to the
existing officers and employees and number to those whose
employment has been terminated. in somewhat similar facts
an officer of messrs jardine hendersons limited who had been
placed in possession of a furnished flat in premises number 27
ballygunj park calcutta as a companydition of his service
wrongfully retained possession thereof after ceasing to be
an officer of the companypany. the question was whether he had
thereby companymitted an
offence punishable under s. 630 of the act. n.g. chaudhuri
j. speaking for himself and g.c. chatterjee j. held that
the opening words of sub-s.  1  of s. 630 namely if any
officer or employee of a companypany qualify the acts of
delinquency specified in clauses  a  and  b  thereof. he
further held that the high companyrt of bombay was in error in
laying down in govind t. jagtianis case that for purposes
of prosecution cl.  a  of s. 630 1  was referable to
existing officer or employee of a companypany while cl.  b  was
wide enumbergh to include former or past officer or employee of
the companypany inasmuch as on a plain reading of the section
the two clauses do number permit different interpretations as
suggested. further whenever the framers of the law in their
wisdom thought it proper to bring within the mischief of the
provisions of the act former officers or employees of a
company they did number hesitate to do so and they expressly
legislated. in particular the learned judge referred to s.
538 which provides for prosecution for offences by officers
of companypanies in liquidation and uses the expression a past
or present officer of a companypany etc. as also s. 545 which
provides for prosecution of delinquent officers and members
of a companypany during the companyrse of winding up and uses the
words any past or present officer etc. upon that basis he
observed that there was numberreason to give a twisted and
laboured interpretation to the provisions of s. 630 of the
act which its plain reading does number permit. the learned
judge also referred to the words any such property in cl.  b  as taking in the property mentioned in cl.  a  i.e. property wrongfully obtained. the reasoning of the learned
judges does number bear scrutiny and renders cl.  b  of s. 630
l  wholly redundant. it is the wrongful withholding of such property
meaning the property of the companypany after termination of the
employment. which is an offence under s. 630 l  b  of the
act as rightly pointed out by v.s. kotwal j. in harkishan
lakhimal gidwani v. achyut kashinath wagh  supra . the facts
were also identical as here. the petitioner there was the
general manager of a companypany knumbern as the english electrical
company of india limited a companypany incorporated under the
companies act 1956 having its registered office at
calcutta. he had been allotted the premises of a flat
approximately 3500 square feet in area located at mayfair
gardens little gibbs road bombay. he had been inducted
into the flat only by virtue of his capacity as the general
manager of the companypanys branch office at bombay but the
company allowed him to retain the same on humanitarian
grounds for a short period after his retirement to enable
him to find alternative accommodation. this humanitarian and
charitable companysideration shown by the companypany was
reciprocated by the petitioner by adopting h
an adamant attitude and he declined to vacate the same on
one pretext or anumberher. the question was whether such
wrongful retention of the flat amounted to an offence under
s. 63   of the act. the companyrt repelled the companytention that
s. 630 of the act applies only to the existing officers and
employees of the companypany and number to former officers and
employees and that the phrase any such property used in
cl.  b  even though cls.  a  and  b  are separated by the
word or which must in the companytext in which it appears be
read as and and so companystrued must mean withholding of
property wrongfully obtained by an existing officer or
employee. kotwal j. on a careful analysis of s. 630 held
that the provisions of the section apply number only to the
present officers and employees of the companypany but also to
past officers and employees and observed
it is held that the features and deductions which
flow logically and inescapably on an analysis of
s. 630 are that  i  clause  a  of the section is
self-contained and independent of cl.  b  with the
capacity of creating penal liability 4 embracing
the case of an existing employee or officer of the
company.  ii  clause  b  is equally independent
and distinct from cl.  a  as regards penal
consequences squarely companyering the case of a past
employee or officer.  iii  the entitlement of an
officer to the property of the companypany is
contingent on the right and capacity of the
officer by virtue of his employment which is
transformed into the actual possession of the
property and the duration of such right would be
co-terminus with the terms of employment. in govind t. jagtiani v. sirajuddin s. kazi  supra
kanade j. fol lowed the critical analysis of s. 630 made by
kotwal j. as above and observed that the entitlement of an
officer to the property of the companypany and the duration of
such right would be companyterminus with the terms of employment
and the right would stand extinguished with the termination
to the employment giving rise to an obligation to hand over
the property back to the companypany and observed
if the property is held back the retained
possession would amount to wrongful withholding of
the property of the companypany. while the existence
of the capacity right and possession would be
during employment the withholding may be even
after the termination of the employment and though
the possession as it precedes the act of retention
or withholding may be rightful in the past
affording an
opportunity to withhold the withholding may be
wrongful as in the present case. the learned judge  ashok agarwal j.  observes that that has
been the companysistent view of the high companyrt and has referred
to the subsequent decisions of khatri j j. and kurdukar j.
in our companysidered opinion the companystruction placed by the
high companyrt on the provisions companytained in s.630 1  is the
only companystruction possible. we accordingly uphold the view
of the high companyrt of bombay that the terms officer or
employee of a companypany applies number only to existing officers
or employees but also to past officers or employees if such
officer or employee either  a  wrongfully obtains possession
of any property or  b  having obtained such property during
the companyrse of his employment withholds the same after the
termination of his employment. the decision to the companytrary
of the high companyrt of calcutta in amritlal chums case does
number lay down good law and is overruled. in the result the special leave petition must fail and
is dismissed with companyts.


civil appellate jurisdiction civil appeal number 1650 of 1970.
anneal from the judgment and order dated january 31 1970 of
the bombay high companyrt in april number 94 of 1967.

t. desai p. c. bhartari. ajit mehta. kirit mehta j.

dadaichanji o. c. mathur and ravinder narain for the
appellant. 14-l736supct/72

sen s. k. aiyar and r. n. sachthey for the respondents. the judgment of the companyrt was delivered by
dua j.-the companyaba land and mills company limited  in liquida-
tion  was ordered by the bombay high companyrt on october 7
1959 to be wound up under the provisions of the companypanies
act 1 of 1956 and the official liquidator was appointed its
liquidator. earlier on may 1 1959 the official liquidator
had been appointed by the high companyrt its provisional
liquidator. on august 23 1966 the income-tax officer
 companypanies circle  companycerned issued six different numberices
under s. 148 of the income-tax act 1961 proposing to reopen
the assessment of the companypany and to re-assess it in respect
of the assessment years 1950-51 to 1955-56. on december 31
1966 the income-tax officer served further numberices under s.
142 1  of the income-tax act upon the official liquidator
calling upon him to produce accounts and documents speci
fied at the back of the numberices and to furnish any
information called for by the said officer. at the foot of
the said numberices it was stated that failure on the part of
the official liquidator to companyply with the terms of those
numberices would number only result in exparte assessment against
the companypany but might also entail penalty under s. 271 of
the income-tax acl certain negotiations followed between the
official liquidator and the inspecting assistant
commissioner of income-tax but they were infructuous. on an
application made by the official liquidator in the high
court questioning the jurisdiction of the income-tax officer
to issue the said numberices or to proceed with the
reassessment of the companypany without the leave of the high
court winding up the companypany vimadlal j. on 28th
september 1967 held that the income-tax authorities were
number entitled to companymence the assessment or reassessment
proceedings companytemplated against the companyaba land and mills
co. limited or to companytinue the same without obtaining leave
of the companyrt under s. 446 1  of the companypanies act 1956  act
number 1 of 1956   hereinafter called the act . the learned
judge on this view granted an injunction restraining the
incometax officer from assessing or re-assessing the said
company for the assessment years 1950-51 to 1955-56.
on appeal by the income-tax officer and the union of india
before the appellate bench of the high companyrt against the
order of injunction the division bench  modi and desai
jj.  reversed the order of the learned single judge and set
aside the injunction issued by him. before the appellate
bench two companytentions were raised on behalf of the income-
tax officer  1  that numberices for reassessment issued under
s. 148 were number legal proceedings within the meaning- of
that phrase as used in s. 446 1  of the act and  2  that
assuming the re-assessment proceedings started under the
said numberices to be legal proceedings leave of the companypany
court under s. 446 1  of the act was number necessary because
the incometax officer had exclusive jurisdiction to make re-
assessment and to determine the tax liability. the
proceedings by way of assessment before the income-tax
officer according to the companytention were outside the pale
of jurisdiction of all civil companyrts including the companypany
court. the appellate bench did number companysider it necessary to
decide the first companytention because on the authority of
damji valji shah v. life insurance companyporation of india 1
the second companytention deserved to be accepted and that was
considered sufficient to companyclude the appeal. the official liquidator after securing a certificate of
fitness from the high companyrt under art. 133 1  c  of the
constitution has appealed to this companyrt and the only
question which requires companysideration here is if it is
necessary for the income-tax officer to obtain leave of the
liquidation companyrt when he wants to re-assess the companypany for
escaped income in respect of past years. section 446 of the act reads

when a winding up order has been made or
the official liquidator has been appointed as
provisional liquidator numbersuit or other legal
proceeding shall be companymenced or if pending
at the date of the winding up order shall be
proceeded with against the companypany except by
leave of the companyrt and subject to such terms
as the companyrt may impose. the companyrt which is winding up the
company shall numberwithstanding anything
contained in any other law for the time being
in force have jurisdiction to entertain or
dispose of-
 a  any suit or proceeding by or against the
company
 b  any claim made by or against the companypany
 including claims by or against any of its
branches in india
 c  any question of priorities or any other
question whatsoever whether of law or fact
which may relate to or arise in companyrse of the
winding up of the companypany
whether such suit or proceeding has been
instituted or is instituted or such claim or
question has arisen or arises or such
application has been made or is made before or

a.i.r. 1966 s.c. 135.
after the order for the winding up of the
company or before or after the companymencement
of the companypanies  amendment  act 1960.

any suit or proceeding by or against the
company which is pending in any companyrt other
than that in which the winding up of the
company is proceeding may numberwithstanding
anything companytained in any other law for the
time being in force be transferred to and
disposed of by that companyrt. numberhing in sub-section  1  or sub-
section  3  shall apply to any proceeding
pending in appeal before the supreme companyrt or
high companyrt. to appreciate and understand the precise scope of this
section so far as it companycerns us in the present companytroversy
we companysider it pro per to turn to the scheme of the act on
this aspect. chapter ii of part vii of the act beginning
with s. 433 deals with winding up by the companyrt. section 439
provides for applications for winding up and s. 441 tells us
when the winding up of a companypany is to be deemed to
commence. section 442 which companyfers power on companyrts to stay
or restrain proceedings against the companypany reads

at any time after the presentation of a
winding up petition and before a winding up
order has been made the companypany or any
creditor or companytributory
may-
 a  where any suit or proceeding against the
company is pending in the supreme companyrt or in
any high companyrt apply to the companyrt in which
the suit or proceeding is pending for a stay
of proceedings therein and
 b  where any suit or proceeding is vending
against the companypany in any other companyrt apply
to the companyrt having jurisdiction to wind up
the companypany to restrain further proceedings
in the suit or proceeding
and the companyrt to which application is so made
may stay or restrain the proceedings
accordingly on such terms as it thinks fit. section 444 enjoins the companyrt making an order for the
winding up of a companypany to cause intimation thereof to be
sent forthwith to the official liquidator and the registrar
appointed under the companypanies act. official liquidators
attached to the high companyrts are appointed by the central
government under s. 448 and the registrars by the central
government under s. 609 of the act. it is the duty of the petitioner in the winding up
proceedings and also of the companypany to file under s. 445 a
certified companyy of the order of winding up with the registrar
who has to numberify in the official gazette that such an order
has been made. such order is to be deemed to be a numberice of
discharge of the officers and employees of the companypany
except when the business of the companypany is companytinued vide s.
445  3 . then companyes s. 446 which has already been set out. the present sub-s.  2  of this section was substituted for
the old one in 1960 by act 65 of 1960 and sub-  4  was also
added by that act. sub-section  2  is on the lines of s. 7
of the presidency towns insolvency act 1909 s. 4 of the
provincial insolvency act 1920 and s. 45b of the banking
companies act. the object of this sub-section appears to be
to empower the companyrt as in exercise of insolvency
jurisdiction to decide all claims made by or against any
company and other questions whatsoever so that winding up
proceedings might be expedited. subsections  2  and  3
both seem to have been inserted to give effect to the
recommendation of the companypany law companymittee report companytained
in para 207 c  namely that all suits by or against a
company in winding up should numberwithstanding any provisions
in any law for the time being in force be instituted in the
court in which the winding up proceedings are pending. this was companysidered to be to quote the exact words on
balance an advantage to all companycerned including the parties
which have a claim against the companypanies to institute suits
relating to its affairs in the companyrt where the winding up
proceedings are pending. in the indian companypanies act
1913 s. 171 provided for preventing litigation against a
company in the process of being wound up and it read as

when a winding up order has been made
or a provisional liquidator has been appointed
numbersuit or other legal proceeding shall be
proceeded with or companymenced against the
company except by leave of the companyrt and
subject to such terms as the companyrt may
impose. the words underlined were inserted by the companypanies amend-
ment act 1936 which followed the english act. it is hardly
necessary to point out that companypany legislation in india
has ever since the first enactment of 1850  registration of
joint-stock companypanies act number xliii of 1850  broadly been
following the lines of development of the companypany law in
england. the object of s. 171 was designed to achieve was
to prevent all litigation against the companypany in the process
of being wound up except with the companysent of the companyrt. we
have reproduced this section because the decisions to which
reference has been made by shri desai in the very beginning
of his arguments relate to the companys-
truction of this section by the federal companyrt of india and
by this companyrt. the federal companyrt in the governumber-general in
council v.shiromani sugar mills limited 1  while companystruing
this section held that the words other legal proceedings
in this section companyprise any proceedings by the revenue
authorities under s. 46 2  of the indian income-tax act and
accordingly before forwarding the requisite certificate
under s. 46 2  to the companylector which would put the
machinery for the companylection of the arrears of land revenue
into motion the income-tax officer should have applied
under s. 171 of the indian companypanies act for leave of the
winding up companyrt. the passage on which shri desai
specifically relied is where disagreeing with the
observations of a full bench of the lahore high companyrt in
shakuntla v. the peoples bank of numberthern india limited  in
liquidation  2  spens c.j. observed that the expression
or other legal proceedings in s. 171 need number and
therefore should number be companyfined to original proceedings
in a companyrt of first instance analogous to a suit initiated
by means of a petition similar to a plaint. the learned
chief justice there went on to observe
section 171 must in our judgment be
construed with reference to other sections of
the act and the general scheme of
administration of the assets of a companypany in
liquidation laid down by the act. in
particular we would refer to s. 232. section
232 appears to us to be supplementary to s.
171 by providing that any creditor  other than
government  who goes ahead numberwithstanding a
winding up order or in ignumberance of it with
any attachment distress execution or sale
without the previous leave of the companyrt will
find that such steps are void. the reference
to distress indicates that leave of the
court is required for more than the initiation
of original proceedings in the nature of a
suit in an ordinary companyrt of law. moreover
the scheme of the application of the companypanys
property in the pari passu satisfaction of its
liabilities envisaged in s. 211 and other
sections of the act cannumber be made to work in
coordination unless all creditors  except
such secured creditors as are outside the
winding up in the sense indicated by lord
wrenbury in his speech in food companytroller v.
cork 3  are subjected as to their actions
against the property of the companypany to the
control of the companyrt. accordingly in our
judgment numbernarrow companystruction should be
placed upon the words or other legal
proceeding in s. 171. in our judgment the
words can and should be held
 1  1946 f.c.r. 40.  2  1941 i.l.r. 22 lah. 760.  3  1923 a.c. 647.
to companyer distress and execution proceedings in
the ordinary companyrts. in our view such
proceedings are other legal proceedings
against the companypany as companytrasted with
ordinary suits against the companypany. in that case a companypany was ordered to be wound up in april
1942 and an order of assessment to income-tax of the profits
made by the companypany in the year ending may 31 1940 was made
in 1943 and the income-tax officer without obtaining leave
of the winding up companyrt companymenced proceedings for recovery
of tax as if it were an arrear of land revenue. it was on
these facts that it was observed that the words or other
legal proceedings can and should be held to companyer distress
and execution proceedings. this expression was number held to
cover assessment proceedings to which apparently no
objection was raised by the parties though they were
represented by eminent companynsel. the decision of this companyrt
to which shri desai has next referred is m. k. ranganathan

government of madras  . the head-numbere which gives a
clear idea of the ratio of this decision is in these words
the secured creditor is outside the winding
up and can realise his security without the
leave of the winding up companyrt though if he
files a suit or takes other legal proceedings
for the realisation of his security he is
bound under s. 171 of the indian companypanies act
to obtain the leave of the winding up companyrt
before he can do so although such leave would
almost automatically be granted. it is a legitimate rule of companystruction to
construe words in an act of parliament with
reference to words found in immediate
connection with them. it is also a well-
recognized rule of companystruction that the
legislature does number intend to make a
substantial alteration in the law beyond what
it explicitly declares either in express words
or by clear implication and that the general
words of the act are number to be so companystrued as
to alter the previous policy of the law
unless numbersense or meaning can be applied to
those words companysistently with the intention of
preserving the existing policy untouched. held therefore that having regard to the
context in which the words any sale held
without leave of the companyrt of any of the
properties added in s. 232 1  by the
amending act xxii of 1936 have been used in
aposition with any attachment distress or
execution put into force without leave of the
court against the estate or effects it would
be a legitimate companystruction to
 1  1955 2 s.c.r. 374.
be put upon them that they refer only to sales
held through the intervention of the companyrt and
number to sales effected by the secured creditor
outside the winding up and without the
intervention of the companyrt and that the
amendment was number intended to bring within the
sweep of the general words sales effected by
the secured creditor outside the winding up. held accordingly that in the present case the
sale effected by respondent number 2 as the
receiver of the trustees of the debenture
holders in july 1954 was valid and binding on
all parties companycerned and companyld number be chal-
lenged as it was sought to be done by the
official receiver. in this case the observations already- reproduced from the
judgment of the federal companyrt in shakuntlas case  supra
were approved. it may also be pointed out that in this
decision this companyrt observed that the winding up companyrt
assures pro rata distribution of the assets of the companypany
in the same way in which the companyrt under the presidency
towns insolvency act or the provincial insolvency act
ensures such distribution of assets. section 232 1  of the
act of 1913 which was held supplemental to s. 171 was also
stated to have reference to legal proceedings in the same
way as such proceedings were envisaged by s. 171. these two
decisions in our opinion do number lay down that assessment
proceedings under the income-tax act should be held to be
within the companytemplation of s. 171 of the indian companypanies
act 1913. the next decision to which reference has been
made by shri desai is union of india v. india fisheries  p
ltd 1 . in that case the respondents fisheries  p  limited
had been directed to be wound up by the winding up companyrt and
an official liquidator had been appointed by an order of the
high companyrt in october 1950. the head-numbere in that case
gives a clear idea of the facts and the decision. it reads

the respondent companypany was directed to be
wound up and an official liquidator appointed
by an order of the high companyrt in october
1950. in december 1950 the respondent was
assessed to tax amounting to rs. 8737 for the
year 1948-49. a claim made for this tax on
the official liquidator was adjudged and
allowed as an ordinary claim and certified as
such in april 1952. the liquidator declared
a dividend of 9 1/2 annas in the rupee in
august 1954 and paid a sum of rs. 5188 to the
department leaving a balance of rs. 3549.  1  1965 3 s.c.r. 678.
in june 1954 the department made a demand
from the respondent and was paid rs. 2565 as
advance tax for the year 1955-56. on a
regular assessment being made for that year
only rs. 1126 was assessed as payable so that
a sum of rs. 1460 inclusive of interest be-
came refundable to the respondent. however
the income tax officer purporting to exercise
the power available to him under s. 49e of the
income tax act 1922 set off this amount
against the balance of rs. 3549 due for the
year 1948-49. a revision petition filed by
respondent in respect of this set off was
rejected by the companymissioner of income-tax. thereafter petition under art. 226 filed by
the respondent to set aside the orders of the
income tax officer and companymissioner was
allowed by the high companyrt on the ground that
the demand for rs. 8737 in respect of 1948-49
being adjudged and certified came to have all
the incidents and character of an unsecured
debt payable by the liquidator to the
department it was therefore governed by the
provisions of companypany law and numberother remedy
or method to obtain satisfaction of the claim
was available to the creditor. in the appeal to this companyrt it was companytended
on behalf of the appellant that s. 49e gave
statutory power to income tax officer to set
off a refundable amount against any tax
remaining payable and that this power was number
subject to any provision of any other law. held the income tax officer was in error in
applying s. 49e and setting off the refund due
to the respondent. the effect of ss. 228 and 229 of the companypanies
act 1913 is inter alia that an unsecured
creditor must prove his debts and all
unsecured debts are to be paid pari passu. once the claim of the department has to be
proved and is proved in liquidation
proceedings it cannumber by exercising the
right under s. 49e get priority over other
unsecured creditors and thus defeat the very
object of ss. 228 and 229 of the companypanies
act. furthermore if there is an apparent
conflict between two independent provisions of
law the special provision must prevail. section 49e is a general provision applicable
to all assessees in all circumstances ss. 228
and 229 deal with proof of debts and their
payment in liqui-
97 4
dation. section 49e can be reconciled with
ss. 228 and 229 by holding that s. 49e applies
when insolvency rules do number apply. in our opinion this decision is of numbergreater assistance to
the appellant on the narrow point which requires
determination by us. on the companytrary to some extent it goes
against shri desai because the assessment made in december
1950 after the appointment of the official liquidator was
assumed to be in order. it may be recalled that in
shiromani sugar mills case  supra  the assessment made after
the winding up order was number challenged though on the
argument addressed by shri desai before us it companyld have
been challenged. the ratio decidendi or the principle
accepted and applied in numbere of the decisions cited supports
the appellants companytention on the precise point of
assessment of tax. shri desai has next referred us to a
more recent decision of this companyrt in balwant singh v. l. c.
bharumal income-tax officer new delhi.  1  in this case
the income-tax officer was held to be a companyrt for the
purpose of s. 195  1   b  cr. p. c. though it was added
that the income-tax officer companyld number be treated as a re-
venue companyrt and therefore neither s. 476 number s. 479-a cr. c. would be applicable. this decision has been cited for
the purpose of companytending that if the expression other
legal proceeding in s. 446 is to be companystrued to mean a
proceeding in a companyrt then the income-tax officer must be
considered to be a companyrt when holding assessment or re-
assessment proceedings. this companytention may be disposed of
with the observation that merely because the income-tax
officer is companysidered to be a companyrt for the purpose of s.
195  1   b  cr. p. c. it does number necessarily follow that
the said officer must be companysidered to be a companyrt for the
purposes of s. 446 of the act. there is numberjustification
for extending the scope of this decision beyond its own
facts. the decisions which apparently seem to lend more
direct support to the appellants companytention are union of
india v. seth spinning mills limited  in liquidation   2  and
mysore spun silk mills limited  in liquidation  in re
official liquidator v. companymissioner of income-tax
bangalore  . both of them are decisions by single judges
the former by the punjab high companyrt and the latter by the
mysore high companyrt. in seth spinning mills case  supra  it
was observed that s. 171 of the indian companypanies act 1913
provides that when a winding up order has been made numbersuit
or other legal proceeding shall be proceeded with or
commenced against the companypany except by leave of the companyrt
and subject to such terms as the companyrt may impose. the
language of this section is wide enumbergh to include
proceedings under the income-tax act.  1  196870 i.t.r.89 s.c.   2  1962 46 i.t.r. 193.  3  1968 68 i.t.r. 295.
numberleave of the companyrt has been obtained. in view of this
the claim of the petitioner for rs. 4000 on account of the
penalty order passed on 14th april 1956 cannumber be
entertained. in this case the union of india through the
commissioner of income-tax had applied to the learned single
judge who was apparently functioning as a companypany judge
praying that the departments claim amounting to rs. 16500
should have been admitted by the official liquidator and
that his refusal to do so was number justified in law. this
amount it appears companysisted of the penalty imposed by the
income-tax department. part of the penalty was imposed by
means of an order passed prior to the companypanys going into
liquidation but a sum of rs. 4000 related to the penalty
imposed after the date of winding up. the learned single
judge while dealing with that petition observed
section 171 of the indian companypanies act
1913 provides that when a winding up order
has been made numbersuit or other legal
proceedings shall be proceeded with or
commenced against the companypany except by leave
of the companyrt and subject to such terms as the
court may impose. the language of this
section is wide enumbergh to include proceedings
under the income-tax act. numberleave of the
court has been obtained. in view of this the
claim of the petitioner for rs. 4000 on
account of the penalty order passed on 14th
april 1956 cannumber be entertained. in the mysore case it appears that in the companyrse of winding
up of the mills in liquidation large sums of money came into
the hands of the liquidator which companyld number be immediately
applied for distribution of dividends to the creditors. those moneys were invested pursuant to the relevant
provisions of the companypanies  companyrt  rules. the question
arose whether in respect of the receipts of income the
liquidator was liable to pay income-tax on those receipts. the learned single judge after discussing the scheme of the
companies act observed
the liquidator is only an officer of the
court. unlike a receiver in the case of
insolvency properties of the insolvent do number
vest in him but companye within the companytrol of the
court. all his actions are subject to the
control of the companyrt for which purpose the
court issues to him appropriate directions
from time to time in the companyrse of winding up. numbercourt or other authority  subject to the
exception companytained in sub-section  4  of
section 446 of the companypanies act  can take any
proceedings or attach or otherwise reach any
of the matters the winding up companyrt treats
the liquidator as its special
97 6
officer specially charged with the duty of
representing the companypany and protecting its
interests in winding up. in the light of the above principles it is
the duty of the companyrt to see that all
liabilities of a companypany are properly met in
accordance with the provisions of the law and
the special provisions in that behalf
contained in the companypanies act. liability to
income-tax is also one of the liabilities
which the companyrt is expected to provide for in
the companyrse of winding up. such being the position the question is
whether because the liquidator does number
answer the description of the principal
officer as defined in the income-tax act the
liability if any of the companypany for payment
of income-tax itself companyes to an end and
therefore the winding up companyrt may ignumbere that
liability. the companyrt thereafter observed that the companyporate existence
of the companypany companytinues even after the winding up order
but after the winding up order the question of payment of
income-tax has to be dealt with or answered on a joint
application of the terms or provisions of the income-tax act
and the companypanies act. after so observing the companyrt
proceeded
that even after a winding up order is passed
the companypany companytinues to be a person within
the meaning of section 4 of the income-tax
act that therefore any receipt in the companyrse
of winding up which would attract liability to
income-tax under appropriate provisions of the
income-tax act would be liable to income-tax
or for payment of tax under income-tax act
but that before any action can be taken by the
appropriate incometax officer under the
income-tax act for the purpose of
quantification or companylection of the income-tax
he should obtain the leave of the winding up
court under section 446 of the companypanies act
and further that the companylection of the tax can
only be by securing the orders of the winding
up companyrt for payment of tax in the light of
the appropriate provisions of the companypanies
act. in this case so far as companylection of the tax assessed is
concerned there can scarcely be any difficulty in agreeing
with the view taken there. but it is only when the companyrt
said that for the purpose of quantification of the income-
tax also leave under s. 446 of the act ha- to be obtained
that we have to companysider if this view
is companyrect. it is on this observation that shri desai has
principally relied. the decisions of the federal companyrt and
of this companyrt already cited by shri desai it may be
recalled do number support this view. reference by shri desai has also been made to abdul aziz
ansari v. the state of bombay 1  in which assessment
proceedings under the bombay sales tax act 1946 were
considered to be legal proceedings for the purpose of
continuance of those proceedings after repeal of the bombay
sales tax act 1946 by s. 48 2  of the bombay sales tax act
3 of 1953. we do number think this decision is of any
assistance for companysidering the question whether assessment
or re-assessment proceedings can be companysidered to be legal
proceedings as companytemplated by s. 446 of the act. the learned companynsel for the appellant has also drawn our
attention to shiromani sugar mills v. governumber general in
council 2  where after referring to s. 171 of the companypanies
act 1913 it was held by the allahabad high companyrt that
initiation by the income-tax officer of steps to recover the
amount of assessment under s. 46 of the income-tax act of
1922 and the prosecution by the companylector of those steps
amounted to companymencement or proceeding with a suit or
other legal proceeding. needless to point out that this is
the view which the federal companyrt on appeal upheld in the
decision already referred to. the further submission pressed by shri desai that s. 446 of
the act is a special provision and s. 148 of the income-tax
act a general provision of law was sought to be supported by
reference to india fisheries case 3 . it may here be
pointed out that in that case it was while dealing with s.
49e of the income-tax act that this companyrt observed that the
revenue companyld number by exercising the right under that
section get priority over other unsecured creditors and it
was in this companytext that it was said that there being
apparent companyflict between two independent provisions of law
the special provision must prevail. in order to understand
and appreciate the binding force of a decision it is always
necessary to see what were the facts of the case in which
the decision was given and what was the point which had to
be decided. thus companysidered india fisheries case 3  lends
numberassistance to shri desai and we are unable to companystrue
the observations in that decision to support shri desais
contention that s. 446 of the act is a special provision as
against s. 148 of the income-tax act under which income-tax
officers hold proceedings for assessment or re-assessment of
income-tax and that therefore the former should prevail over
the latter. a.i.r. 1958 bom. 279.  2  i.l.r. 1945 allahabad 352.  3  1965 3 s.c.r. 678.
turning number to the income-tax act it is numbereworthy that s.
148 occurs in chapter xiv which beginning with s. 139 pres-
cribes the procedure for assessment and s. 147 provides for
assessment or re-assessment of income escaping assessment. this section empowers the income-tax officer companycerned
subject to the provisions of ss. 148 to 153 to assess or re-
assess escaped income. while holding these assessment
proceedings the income-tax officer does number in our view
perform the functions of a companyrt as companytemplated by s.
446 2  of the act. looking at the legislative history and
the scheme of the indian companypanies act particularly the
language of s. 446 read as a whole it appears to us that
the expression other legal proceeding in sub-s.  1  and
the expression legal proceeding in sub-s.  2  companyvey the
same sense and the proceedings in both the sub-sections must
be such as can appropriately be dealt with by the winding up
court. the income-tax act is in our opinion a companyplete
code and it is particularly so with respect to the
assessment and re-assessment of income-tax with which alone
we are companycerned in the present case. the fact that after
the amount of tax payable by an assessee has been determined
or quantified its realisation from a companypany in liquidation
is governed by the act because the income-tax payable also
being a debt has to rank pari passu with other debts due
from the companypany does number mean that the assessment
proceedings for companyputing the amount of tax must be held to
be such other legal proceedings as can only be started or
continued with the leave of the liquidation companyrt under s.
446 of the act. the liquidation companyrt in our opinion
cannumber perform the functions of income-tax officers while
assessing the amount of tax payable by the assessees even if
the assessee be the companypany which is being wound up by the
court. the orders made by the income-tax officer in the
course of assessment or re-assessment proceedings are
subject to appeal to the higher hierarchy under the income-
tax act. there are also provisions for reference to the
high companyrt and for appeals from the decisions of the high
court to the supreme companyrt and then there are provisions for
revision by the companymissioner of income-tax. it would lead
to anumberalous companysequences if the winding up companyrt were to be
held empowered to transfer the assessment proceedings to
itself and assess the companypany to income-tax. the argument
on behalf of the appellant by shri desai is that the winding
up companyrt is empowered in its discretion to decline to
transfer the assessment proceedings in a given case but the
power on the plain language of s. 446 of the act must be
held to vest in that companyrt to be exercised only if
considered expedient. we are number impressed by this
argument. the language of s. 446 must be so companystrued as to
eliminate such startling companysequences as investing the
winding up  companyrt with the powers of an income-tax officer
conferred on him by the income-
tax act because in our view the legislature companyld number have
intended such a result. the argument that the proceedings for assessment or re-
assessment of a companypany which is being wound up can only be
started or companytinued with the leave of the liquidation companyrt
is also on the scheme both of the act and of the income-tax
act unacceptable. we have number been shown any principle on
which the liquidation companyrt should be vested with the power
to stop assessment proceedings for determining the amount of
tax payable by the companypany which is being wound up. the
liquidation companyrt would have full power to scrutinise the
claim of the revenue after income-tax has been determined
and its payment demanded from the liquidator. it would be
open to the liquidation companyrt then to decide how far under
the law the amount of income-tax determined by the
department should be accepted as a lawful liability on the
funds of the companypany in liquidation. at that stage the
winding up companyrt can fully safeguard the interests of the
company and its creditors under the act.