Mohal Lal v. Collector of Bulandshahr — 1958 DIGILAW 57 (ALL)

JUDGMENT Beg, J. - This is Writ petition No. 1212 of 1953. It is connected with writ petitions Nos. 1194, 1213, 1215 to 1219 and 1267 to 1271 of 1955 and No. 310 of 1956. All these writ petitions are u/Art. 226 of the Constitution. All of them are connected together and are being disposed of by this judgment as they are based on similar facts and involve the same question. 2. The Petitioners in all these writ petitions were the share holders of a company called the District Syndicate Bulandshahr Ltd. (hereinafter called the company). The said company was a private limited company with an authorised share capital of Rs, 5 lacs divided into 500 shares of Rs. 1000/- each. The liability of each member of the company was limited to the shares purchased by him. In the year 1948 the UP Governmnt appointed the said company as the sole importer of cloth in the district of Bulandshahr. The company worked as such upto the end of 1949 when the Govt, stopped supplying cloth to it. As a result, on 19-8-1951 the members of the company passed a resolution by which the company went into voluntary liquidation. These liquidation proceedings are still going on. At the time of liquidation the company had 31 share holders holding fully paid up shares. The Sales Tax Officer, Bulandshahr assessed the company for the business done by it during 1948-49 and 1949-50 for an amount of about Rs. 65,000/- . The amount assessed not having been paid the Sales Tax Officer sent a requistion to the Collector for its realization as land revenue. The Collector thereatter proceeded to realise it as such, and issued a notice to each of the share holders. The entire contents of this notice which constitute Annexure "A" to the counter affidavit are reproduced below: Notice for issue to the shareholders of the Syndicate. 3. Whereas a sum of Rs. 64,978/11 /9 is due against the Bulandshahr cloth Dealers Syndicate Ltd. as arrears of Sales Tax for 1948- . 49 and 1949-50., 4. And, whereas certificates have been issued by the Sales Tax Officer, Bulandshahr for recovery of the aforesaid dues as arrears of land revenue u/s 8 of the UP Sales Tax Act 1948. 5. 64,978/11 /9 is due against the Bulandshahr cloth Dealers Syndicate Ltd. as arrears of Sales Tax for 1948- . 49 and 1949-50., 4. And, whereas certificates have been issued by the Sales Tax Officer, Bulandshahr for recovery of the aforesaid dues as arrears of land revenue u/s 8 of the UP Sales Tax Act 1948. 5. And, whereas you, as a share holder of the aforesaid Syndicate and in pursuance of the resolution for reduction of share capital from Rs. 5,00,000/- to Rs. 50,000/- as passed in the general meeting on 21-5-50 in contravention of the provisions the of Indian Companies Act in this regard, withdrew a sum of about Rs. 1 3,000/- from the paid up share capital; And, whereas in view of the illegality and inoperativeness of the aforesaid resolution the aforesaid withdrawn amount of. share capital still represents the capital and assets of the company in your hands; I, Sri Gian Prakash, I. A. S. Collector and District Magistrate, Bulandshahr, therefore, here call upon you to deposit a sum of Rs. 2100/- towards the aforesaid arrears of sales Tax out of aforesaid assets of the Syndicate in your hands, within 9-8-1956 failing which the above amount will be recovered from you as an arrear of land revenue by detention of your person or attachment and sale of your movable and immovable property or such other procedure as may be open under law. 6. Sd. Gian Prakash IAS Collector & District Magistrate, Bulandshahr 7. On behalf of the Petitioners it is argued before us that the tax was assessed on the company. The company was a limited liability company. The person responsible for its payment is either the company or its representative who might be the liquidator. In any case, the share holders personally were not made liable nor did they represent the company. The proceedings against them are, therefore, bad in law. 8. The prayer in the present writ petitions, therefore, is that the opposite party, namely, the Collector of Bulandshahr, be prohibited by an appropriate writ, order or direction in the nature of mandamus from proceeding with the realisation of the amount from the Petitioners personally. 9. The case put forward by the Collector, Bulandshahr in his counter affidavit is that the Petitioners are the share holders of the company. 9. The case put forward by the Collector, Bulandshahr in his counter affidavit is that the Petitioners are the share holders of the company. They had illegally withdrawn a part of the share capital of the company by passing an ineffective resolution for reduction of share capital hence they are liable to reimburse their share of the amount by which share capital was reduced. According to him, this amount works out at Rs. 2,100/- per share holder. The notice of demand is, therefore, sought to be justified on this ground. Having heard Learned Counsel for the parties, we are of opinion that all these Writ petitions should be allowed. 10. S. 8 of the Sales Tax, 1948, Act No. XV of 1948, provides that the sales tax due under the said Act payable to the State Govt, shall be recoverable as arrears of land revenue. The procedure for the recovery of an amount as arrears of land revenue is laid down in the UPZA and LR Act, Act No. 1 of 1951. The specific section on which reliance has been placed on behalf of the State is S. 279 of the said Act and it runs as follows: Procedure for recovery of an arrear of land revenue. An arrear of land revenue may be recovered by any one or more of the following processes: (a) by serving a writ of demand or a citation to appear on any defaulter, (b) by arrest and detention of his person, (c) by attachment and sale of his movable property including produce, (d) by attachment of the holding in respect of which the arrear is due, (e) by sale of the holding in respect of which the arrear is due, (f) by attachment and sale of other immovable property of the defaulter. 11. It is obvious that the word "his" in sub-Cls. (b) and (c) obviously refers to the person who is termed a defaulter in sub-Cls. (a) and (f) of the above section. In the present case we are not concerned with sub-Cls. (d) & (e) of S. 279, quoted above. On behalf of the State, however, reliance is placed on other sub-clauses of S. 279. We are of opinion that the above notice which is issued to the share holders, and which is impugned in these cases, cannot be justified by the aforesaid provision of law. u/s ub-Cl. (d) & (e) of S. 279, quoted above. On behalf of the State, however, reliance is placed on other sub-clauses of S. 279. We are of opinion that the above notice which is issued to the share holders, and which is impugned in these cases, cannot be justified by the aforesaid provision of law. u/s ub-Cl. (a) of S. 279, quoted above a writ of demand can be issued only against a "defaulter." It is conceded in the present case that the defaulter was the company. Notice for the realisation of the amount could, therefore, only be issued by the Collector against the defaulter, i.e. the company, and not against any other person. A perusal of Annexure I, quoted above, however, shows that the notice in the present case was issued not against the company, but against the share holders of be company. The heading of the notice itself states that it was a "Notice for issue to the share holders of the Company." This notice is, therefore directed against a wrong person. The share holders of the company are not the company nor do they represent the company. It is argued on behalf of the State that the notice was issued against the share holders because they had in their possession the monies of the company. No warrant, however, for this action is to be found within the four corners of S. 279 of the said Act. Sub-clause (a) specifies the person against whom a notice is to be issued and, according to in notice can only be issued against a particular person who is a defaultter. If the share holders are not the defaulters, it is difficult to understand as to how the notice could be issued against them. In this view of the matter, it is quite clear that the very foundation of the proceeding taken by the Collector u/s 279 of the UP ZA and LR Act disappears. The issue of the notice in the present case is therefore, clearly in contravention of the provisions of Sub-clause (a) of S. 279 and must be set aside. 12. The contents of the notice also indicate that they are in contravention of the other provisions of this section. Sub-clause (b) of the section authorises the Collector to recover arrear of land revenue by arrest and detention of the person of the defaulter. 12. The contents of the notice also indicate that they are in contravention of the other provisions of this section. Sub-clause (b) of the section authorises the Collector to recover arrear of land revenue by arrest and detention of the person of the defaulter. The present notice is directed against the share holders, and it is stated therein that, if the amount in question is not paid by them, it will be recovered from them as an arrear of land revenue by detention of their person. If the defaulters are not the share holders but the company, it is difficult to understand as to how the Collector can call upon the share folders to deposit the money and further threaten them with coercive action of arrest and detention for an amount which under law was to be realised by a different person, namely, the company. The notice in question thus contravenes the provisions of Sub-clause (b) also. 13. Further Sub-clause (c) of S. 279 authorises the Collector to recover the land revenue by attachment and sale of movable property of the defaulter. A perusal of Annexure, I, the notice quoted above, however, indicates that in the notice the Collector stated that, if the amount in question was not paid, it would be recovered by attachment and sale of movable property of the share holders to whom notice is given. Thus, the action of the Collector in this regard was also unauthorised and unwarranted by law. It was certainly open to the Collector to attach and sell the movable property of the company. It might even be open to him to attach and sell the movable property of the company, if it was traceable in the hands of other persons. This part of the notice, however, does not say that. On the other hand, it states that the Collector would proceed against the movable property of the share holders. The subject matter in dispute in the present case is money. If the Collector had chosen to proceed merely against the movable property of the company in the hands of the sl(sic) are holders, even then it might have been a moot question as to how far the money of the share holders could be termed as movable property of the company in the hands of the share holders. If the Collector had chosen to proceed merely against the movable property of the company in the hands of the sl(sic) are holders, even then it might have been a moot question as to how far the money of the share holders could be termed as movable property of the company in the hands of the share holders. If the specific money has ceased to be traceable in specie, it might be said that the particular amount sought to be realized cannot be considered to be the movable property of the company. A difficulty might arise in the present case as it might be argued that the specific money not being traceable in specie, its amount cannot be considered to be the movable property of the company in the hands of the shareholders. We are, however, not concerned with this aspect of the matter in the present case, and refrain from expressing any opinion on it. As the Collector has clearly mentioned in the order that in case of non-payment of the amount demanded he would proceed against the movable property of the shareholders, this demand of the Collector is obviously unsustainable and cannot be justified. Therefore in this regard again the notice is in contravention of the provisions of Sub-clause (e) of S. 279. 14. The notice further states that if the amount demanded is not paid, it may be realized by the attachment and sale of the immovable property of the shareholders. The proper party to be proceeded against is as already observed, the company, and not the shareholder. In this regard, again, the notice exceeds the ground of Sub-clause (f) of S. 279, and is, therefore, unwarranted by the provisions of law. 15. For the above reasons, we are of opinion that the aforementioned notice issued by the Collector to the share holders who are the Petitioners in all these writ petitions was ultra vires and must be set aside. We, accordingly, allow these writ petitions and direct that a mandamus shall issue to the opposite parties restraining them from proceeding with the realization of Rs. 2100 from the Petitioners in accordance with the notice which is Annexure I to the counter affidavit. 16. In the circumstances of the case, we direct that the Petitioners will be entitled to their costs from the opposite parties in all these petitions separately.