Kerala High Court
Jose Antony Kokkad vs Official Liquidator And Anr. on 25 June, 1998
Equivalent citations: 1998(2)ALD(CRI)741, [1999]98COMPCAS275(KER), 1998CRILJ4095
JUDGMENT K.A. Mohamed shafi, J.
1. This application is filed by the accused in C. C. No. 456 of 1996 pending before the Additional Chief Judicial Magistrate's Court, Ernakulam, to stay all the proceedings under Section 446 of the Companies Act, 1956.
2. C. C. No. 456 of 1996 is filed by the second respondent herein before the Additional Chief Judicial Magistrate's Court, Ernakulam, alleging an offence punishable under Section 138 of the Negotiable Instruments Act against the petitioner and Belhouse Associates (P.) Ltd., which is the company under liquidation of which the petitioner was the managing director. It is alleged in the complaint filed before the Additional Chief Judicial Magistrate's Court, Ernakulam, a copy of which is marked as annexure A-1, that the cheque for Rs. 1,12,000 was issued by the accused therein on January 19, 1996, in order to discharge the liability to the complainant for the electrical works done by them and when the cheque was presented for encashment it bounced and the accused did not pay the amount inspite of registered notice sent on behalf of the complainant intimating about the dishonour of the cheque and calling upon them to pay the amount.
3. The first accused-company therein is under dissolution as per the order passed by this court in C. P. No. 20 of 1994 and the official liquidator has been appointed as the liquidator of the company. It is also contended by the petitioner that apart from alleging that he issued the cheque as the managing director of the company absolutely no allegation is made personally against him in the complaint. Therefore, according to him, the liability under C. C. No, 456 of 1996 is entirely upon the company and as such the entire proceedings of the case are liable to be stayed under Section 446 of the Companies Act.
4. The official liquidator has filed objections opposing the above application stating that C. C. No. 456 of 1996 was instituted by the second respondent under Section 138 of the Negotiable Instruments Act against the company under liquidation and the applicant herein and the proceedings are not liable to be stayed under Section 446 of the Companies Act and similar applications in M. C. A. Nos, 106 and 109 of 1990 and 155 of 1994 in C. P. Nos. 54 and 57 of 1989 were dismissed by this court by order dated June 12, 1997.
5. No notice is issued from this court to the second respondent. Counsel for the applicant and the official liquidator were heard.
6. The facts that the company is under liquidation and the official liquidator is appointed as the liquidator of the company and C. C. No. 456 of 1996 pending before the Additional Chief Judicial Magistrate's Court, Ernakulam is instituted by the second respondent alleging an offence punishable under Section 138 of the Negotiable Instruments Act against the company and the applicant as accused Nos. 1 and 2 respectively since the cheque issued by the company and signed by the applicant as managing director was dishonoured for insufficiency of funds, are admitted. The only contention raised by the applicant is that the allegation made by the second respondent before the Additional Chief Judicial Magistrate's Court, Ernakulam, is against the company under liquidation and nothing personally is alleged against the applicant and, therefore, the liability in that proceedings being that of the company under liquidation, Section 446 of the Companies Act applies and, therefore, the proceedings are liable to be stayed under Section 446 since the proceedings are no.t instituted by obtaining leave from this court,
7. The official liquidator has contended that apart from alleging criminal liability punishable under Section 138 of the Negotiable Instruments Act, absolutely no claim or allegation is made against the assets of the company under liquidation and, therefore, the provisions of Section 446 of the Companies Act have absolutely no application to the facts of this case.
8. Section 446 of the Companies Act reads as follows :
"446. Suits stayed on winding up order.--(1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose."
9. Even though the provisions of Section 446 of the Companies Act are wide enough to include criminal prosecution within the ambit of legal proceedings mentioned therein, the criminal proceedings which relate to the assets of the company alone will come within the ambit of the legal proceedings contemplated under Section 446 of the Companies Act. In this case it is clear from the complaint filed by the second respondent before the Additional Chief Judicial Magistrate's Court, a copy of which is produced as annexure A-1 to this petition, that only the offence punishable under Section 138 of the Negotiable Instruments Act is alleged against the applicant and the company and absolutely no allegation to fasten any civil liability against the applicant and the company is alleged in that complaint. It is also stated by the applicant in the affidavit filed in support of this application that O. S. No. 447 of 1996 filed by the second respondent against the applicant and the company before the Second Additional Sub-Court, Ernakulam, for realisation of the amount covered by the cheque, is already transferred to this court and renumbered as C. S. No. 24 of 1997. It is also submitted at the Bar that the suit has been withdrawn by the plaintiff therein.
10. Counsel for the official liquidator submitted that this court has considered an identical issue in the decision in K, P. Devassy v. Official Liquidator [1997] 2 KLJ 243 ; [1997] 90 Comp Cas 438 and held that the complaint fifed under Section 138 of the Negotiable Instruments Act cannot be stayed and transferred to the company court under Section 446 of the Companies Act. In that reported case, the petitioner who was the managing director of Chandhini Chits (P.) Ltd., which was ordered to be wound up as per order dated November 17, 1989, filed an application for transfer of the criminal cases instituted against him before the Magistrate's court under Section 138 of the Negotiable Instruments Act for dishonour of the cheques issued by him as the managing director of the company for insufficiency of funds. In that case the learned single judge of this court, after considering the various decisions of this court as well as other High Courts, held that since the proceedings under Section 138 of the Negotiable Instruments Act are purely for the punishment of the person who issued the cheque, no recovery of any amount can be claimed in respect of the dishonoured cheque in that criminal case and as such that proceeding does not relate to the assets of the company and, therefore, Section 446 of the Companies Act is not attracted in those cases.
11. It has to be remembered that the provisions of Section 446 of the Companies Act are intended to safeguard the assets of the company under liquidation against wasteful and expensive litigation with regard to the matters which can be decided expeditiously and cheaply in the winding up proceedings itself. It is the object of Section 446 to preserve the assets of the company in liquidation which are in the hands of the official liquidator appointed by the court, so that the assets of the company can be distributed in an equitable manner to the creditors and members of the company. Section 138 of the Negotiable Instruments Act is enacted in order to safeguard the credibility of commercial transactions and to prevent bouncing of cheques by providing a personal criminal liability against the drawer of the cheque in public interest. No civil liability or any liability against the assets of the drawer of the cheque is contemplated under Section 138 of the Negotiable Instruments Act. Therefore, I am in respectful agreement with the observations made by the learned single judge in the above decision to the effect that the provisions under Section 446 of the Companies Act have no application to the proceedings under Section 138 of the Negotiable Instruments Act.
12. Counsel for the applicant submitted that the provisions of Section 446 of the Companies Act are very wide so as to take in proceedings initiated against the managing director of the company in respect of the acts done by him on behalf of the company without making any personal liability against him and, therefore, the proceedings initiated under Section 138 of the Negotiable Instruments Act against himself and the company under liquidation before the Magistrate are liable to be stayed and disposed of by this court itself. In support of this contention the counsel for the petitioner lays reliance upon the decision of a Division Bench of this court in Prof. P. Narayanan Kutty v. Official Liquidator [1998] 1 KLJ 656 ; [1999] 96 Comp Cas 418 wherein the Division Bench has held that Section 446 of the Companies Act applies to any action initiated in any other forum like the Consumer Redressal Forum and the winding up court has the jurisdiction to entertain or dispose of such proceedings. The above decision relied upon by the counsel for the applicant is of no help to the applicant since in that decision the Division Bench of this court has only laid down that Section 446 of the Act applies to proceedings in which claim against the assets of the company under liquidation is made. Therefore, this contention of the applicant is also not sustainable.
13. Counsel for the official liquidator submitted that the provisions of Section 138 of the Negotiable Instruments Act override the provisions of the Companies Act as it is a very special provision incorporated in the Negotiable Instruments Act, though the Companies Act contains certain special provisions in order to safeguard the rights of the company under liquidation. In support of this contention he relies upon the decision of this court in K. P. Devassy v. Official Liquidator [1997] 2 KLJ 243 ; [1997] 90 Comp Cas 438 already referred to above. In that case, the learned single judge of this court relying upon the decision of the Supreme Court in Damji Valji Shah v. L. I. C. of India [1965] 35 Comp Cas 755 ; AIR 1966 SC 135 to the effect that the provisions of the special Act, viz., the Life Insurance Corporation Act will override the provisions of the general Act, viz., the Companies Act, which is an Act relating to the companies in general, held that the special provisions contained in the Negotiable Instruments Act regarding cheques will definitely prevail over the provisions contained in the Companies Act.
14. Counsel for the applicant argued that in the decision in Damji Valji Shah v. L. I. C. of India, [1965] 35 Comp Cas 755 ; AIR 1966 SC 135, the Supreme Court found that the Life Insurance Corporation Act pertaining to the Life Insurance Corporation which is also a company coming within the ambit of the Companies Act is the special statute whereas the Companies Act is the general statute relating to all companies in general. Therefore, according to him the principle laid down in that decision is not applicable to a case wherein the question whether the provisions of one special statute, viz., the Negotiable Instruments Act override the provisions of the Companies Act has to be decided.
15. It has to be remembered that Chapter XVII dealing with penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts consisting of Sections 138 to 142 is incorporated in the Negotiable Instruments Act by the Central Act No. 66 of 1988 with effect from April 1, 1989. Those special provisions are enacted with the special and specific intention of safeguarding and sustaining the credibility of commercial transactions. Those provisions are incorporated in the Negotiable Instruments Act while the entire provisions of the Companies Act including Section 446 were in force. Therefore, it has to be presumed that Parliament enacted those provisions fully aware of the provisions of the Companies Act including Section 446. Therefore, the subsequent Act enacting certain special provisions has got overriding effect over the previous statute though containing special provisions. Therefore, the contentions raised by the applicant against the finding of the learned single judge of this court in the above decision in K. P. Devassy v. Official Liquidator [1997] 2 KLJ 243 ; [1997] 90 Comp Cas 438 are absolutely unsustainable and I am in respectful agreement with the observations made by the learned single judge in the above judgment regarding this aspect, Hence the contention of the applicant that Section 138 of the Negotiable Instruments Act has no overriding effect against Section 446 of the Companies Act is also not sustainable.
16. It is clear from my foregoing discussions that the contention of the applicant that the proceedings initiated against the applicant and the company under liquidation before the Additional Chief judicial Magistrate's Court under Section 138 of the Negotiable Instruments Act are liable to be stayed under Section 446 of the Companies Act, is not sustainabie. Hence this application is dismissed.