It pleaded that because of action threatened by the Registrar of Joint Stock Companies in 1959 it was companypelled to companysider its position and to decide in a General Body meeting in June 1960 to dispose of the assets of the companypany.
Subsequently the Income tax authorities decided to reopen the assessment proceedings under s. 34 of the Indian Income tax Act, 1922 and, it is said, this was companymunicated to the Company.
Rajeswari Co. also filed a written statement in opposition to the suit and besides asserting that it had installed companyton bale presses in the buildings of the Company pursuant to the partnership agreement between them it denied any fraudulent intent in purchasing the assets of the Company.
It asserted that it acted in good faith and paid value for the properties.
The processing of the case took time and the numberices under s. 34 were issued for the different assessment years on March 6, 1961 and March 7, 1961.
1689 Of 1974 From the Judgment and Order dated 31st August, 1972 of the Madras High Court in Appeal No.
The assets of the companypany were transferred in favour of Rajeswari Co. and the sale proceeds were employed for paying off the debts due to various creditors who, it is said, included also the close relations and friends of the Directors of the Company.
The right of pre emption was pressed by Rajeswari Co. and, therefore, a resolution was passed in February 1961 at another Extraordinary Meeting of the Company to sell the lands and buildings at a valuation to be fixed by expert opinion.
This proposition of law was re affirmed by the Judicial Committee subsequently in MA PWA MAY and another v. S.R.M.M.A Chettyar Firm, 56 Indian Appeals 379.
It denied that when disposing of its assets it was aware of the intention of the income tax authorities to reopen its assessments.
It was alleged that the Company had in fact ceased to carry on its own business, but in companyputing the income of the Company from the assessment year 1956 57 to the assessment year 1959 60 the losses suffered during the previous years from the Companys own business were allowed to be carried forward and set off against its share of income from the partnership Firm.
The suit was resisted by the Company, which in its written statement, admitted that it was working at a loss for some years and was obliged to replace its original business of seed crushing and oil extraction by a more modest business activity, and in its circumstances it entered into a partnership with Rajeswari Co. for carrying on the business of pressing companyton bales.
It was alleged that meanwhile, the Company, having companye to know of the proposed re opening of its income tax assessments, began to dispose of its moveable and immoveable assets with a view to defeat the claim of the Union of India and to place the properties beyond the reach of the creditors of the companypany.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
357 of 1965.
It was also stated that the partnership agreement of 1954 between the Company and Rajeswari Co. stipulated that Rajeswari Co., should have first preference if the Company proposed to sell its assets.
It was alleged that the Company incurred losses in its own business year after year and from 1954 the only income derived by it flowed from the shares held by it in the partnership business.
The trial companyrt decreed the suit on Appril 27, 1965.
In the result, there was numberhing left for paying off the tax arrears of the Company.
B. Ahuja and Ms. A. Subhashini for the Appellant.
T.M. Sampath and P.N. Ramalingam for the Respondents.
Under the partnership agreement Rajeswari Co. was to install a companyton baling press in the buildings of the Company and the business would be carried on under the name Rajapalayam Cotton Pressing Factory, with the profits being divided between the Company and Rajeswari Co. in the ratio of 7 to 9 respectively.
It entered into a partnership in September 1952 with Rajeswari and Co., which was carrying on business in the pressing of companyton bales.
This was replaced by another agreement in 1954, but the business was carried on in the same name and the profits divided in the same shares.
A suit was instituted by the Union of India, the appellant before us, alleging that the Krishna Oil Mills and Industries Ltd., a public limited companypany registered under the Indian Companies Act, 1913 was carrying on business in the manufacture and sale of tin cans and aerated water.
The Judgment of the Court was delivered by PATHAK, J. This appeal by special leave arises out of a suit instituted by the appellant for a declaration that a sale deed of immoveable properties and the transfer of moveables belonging to the respondent limited companypany in favour of the respondent firm are invalid, inoperative and number binding on the appellant and other creditors of the respondent limited companypany.
It was asserted that the assets were sold to Rajeswari Co. and the sale proceeds were distributed to the creditors so that all the creditors were paid off.
