Madras High Court
Counter Point Advt. P. Ltd., Rep. By Its ... vs Harita Finance Limited, Rep. By Its ... on 3 March, 2006
Equivalent citations: [2006]133COMPCAS435(MAD), 2006CRILJ2289, 2006(2)CTC501, 2006 CRI. L. J. 2289, (2006) 42 ALLINDCAS 749 (MAD), 2006 (4) ALL LJ NOC 855, 2006 (4) ABR (NOC) 715 (MAD), (2006) 4 ALLCRILR 202, (2006) 3 RECCIVR 602, (2006) 3 RECCRIR 609, (2006) 133 COMCAS 435, (2006) 2 CRIMES 368, (2007) 1 CIVLJ 137, (2006) 3 CIVILCOURTC 286, (2006) 1 MADLW(CRI) 417, (2006) 4 ICC 461, (2006) 2 BANKJ 884, (2006) 1 MAD LJ(CRI) 415, (2007) 1 BANKCLR 752, (2006) 2 CTC 501 (MAD)
ORDER M. Jeyapaul, J.
1. These petitions are filed to quash the criminal proceedings in C.C. Nos. 250 of 2003 and 5024 of 2002 on the file of the learned XI Metropolitan Magistrate at Egmore, Chennai.
2. The petitioners are the accused in the criminal proceedings initiated by the respondent for the offence under Section 138 of the Negotiable Instruments Act.
3. It has been alleged in the complaint that the complainant-company financed the first accused company for the purchase of plant and machinery and the second accused in his capacity as a Director of the first accused company issued cheques to discharge the liability of the first accused company. It is further alleged in the complaint that when the cheques were presented, the same were returned with the endorsement "Accounts Freezed". After issuing the statutory notice calling upon the first and second accused to pay the cheque amount, the complaints were filed against the first and second accused for the offence under Section 138 of the Negotiable Instruments Act, as there was no positive response from the side of the accused.
4. In these petitions three issues were raised. First contention is that when the entire administration of the company was taken over by the Official Liquidator on winding up of the company, the accused cannot be prosecuted for the offence under Section 138 of the Negotiable Instruments Act. The second contention is that when the cheques were returned with the endorsement "Accounts Freezed", it would not amount to return of the cheques for insufficient funds in the accounts of the accused. Thirdly, it is contended that the statutory notices were not properly served on the accused.
5. Learned counsel for the petitioners/accused would submit that in a case where the winding up proceedings were pending as against the company, there may be some scope for the complainant to invoke the provision under Section 138 of the Negotiable Instruments Act to fasten the criminal liability on the company, which is in the process of winding up. But when the company itself was wound up, no legal proceedings for enforcing the uncompleted liability of the accused would exist.
6. Learned counsel for the respondent/complainant would contend that notices were issued to the registered address of the accused and that therefore the accused cannot have any grievance as regards the issuance of statutory notice. It is his further submission that inasmuch as the Negotiable Instruments Act is a Special Act, which overrides the provisions under the Companies Act, the accused cannot escape from the criminal liability just because the Company was wound up. It is his vehement argument that the complainant had not proceeded against the assets of the company, but against the persons for their criminal liability and that therefore Section 446 of the Companies Act is not a bar to such criminal proceedings.
7. It is found that the statutory notices were issued by the complainant to the registered address of the accused. But it is found that the notices were returned unserved. Therefore the accused cannot validly contend that the statutory notice was not properly given to the accused.
8. Of course, the account of the accused was freezed on account of the winding up proceedings as against the accused-company, but the accused company having issued the cheques for the subsisting liability is bound to see that the cheques are honoured at any cost. The freezing of the account was not on account of the act of the complainant, but it was on account of the act of the accused. The accused company, therefore cannot escape from the criminal liability on the ground that the cheques were returned dishonoured only on account of the freezing of the accounts of the accused.
9. The accused has to still answer the claim of the complainant even in case the accounts were freezed on account of the winding up proceedings initiated against the accused.
10. It has been observed in J.K. LTD vs. KAISER SPG. CO. (1969 (2) SCR 866) as follows:-
It is thus well established that once a winding-up order is passed the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realise them and to pay from out of the sale-proceeds its creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed, for doing so would be contrary to the creditors' right to have the proceeds of the assets distributed among them pari passu.
The above ratio would apply where a new right was created with a new creditor or uncompleted right of the creditor is enforced, as it would affect the right of the creditors to have the proceeds of the assets distributed among them 'pari passu'.
11. But here in the instant case, there is no question of claiming any right over the assets of the company, after winding up proceedings were over. The criminal liability is enforced on the company and the Director of the Company for their act.
12. The Division Bench of the Kerala High Court in Jose Antony Kakkad v. Official Liquidator 2000 Company Cases (Vol.100) 811 affirming the decision of the single Judge in Jose Antony Kokkad v. Official Liquidator (1999) 98 Company Cases 275 has categorically held as follows:-
The expression "other legal proceedings" in Section 446 of the Companies Act, 1956, does not take in all proceedings and proceedings under a special Act have an overriding effect over the general provisions under the Companies Act. The object of winding up of a company by the Court is to facilitate the protection and realisation of its assets with a view to ensure an equitable distribution thereof among those entitled. Once the Court has taken the assets of a company under its control or has passed an order for its being wound up, in the ordinary course, it will not be proper to allow proceedings to be started or continued against the company. Section 446 of the Companies Act is intended to avoid multiplicity of proceedings and to safeguard the assets of a company against wasteful or expensive litigation in regard to matters capable of being determined expeditiously and effectively by the winding up Court itself. Though the words "legal proceedings" in Section 446 of the Companies Act is wide enough to be taken in criminal proceedings also, such criminal proceedings must be in relation to the assets of the company. Criminal proceedings which are not in respect of the assets of the company but which end in the conviction or acquittal of the accused, cannot be stayed under Section 446 of the Companies Act. Proceedings under Section 138 of the Negotiable Instruments Act, 1881, can end only in the conviction or acquittal of the accused in the case and no recovery of any amount covered by the dishonoured cheques can be made in the criminal proceedings. As the proceedings under Section 138 of the Negotiable Instruments Act are not in respect of the assets of the company, the proceedings pending in the criminal Courts cannot be stayed under Section 446 of the Companies Act.
Moreover, Section 138 to 142 in Chapter XVII were introduced in the Negotiable Instruments Act by Central Act 66 of 1988 with effect from April 1, 1989. The above provisions were incorporated in the Negotiable Instruments Act with the intention of safeguarding and sustaining the credibility of commercial transactions and those provisions were introduced while Section 446 of the Companies Act was in force. When specific provision has been made with respect to the commission of an offence under Section 138 of the 1881 Act by a company or its directors or its employees, it has to be presumed that Parliament introduced the above provisions in the Negotiable Instruments Act fully knowing that Section 446 was there in the Companies Act.
14. I am in full agreement with the above ratio which distinguishes the legal proceedings contemplated under Section 446 of the Companies Act from that of the criminal proceedings under Section 138 r/w Section 142 of the Negotiable Instruments Act.
15. As the Negotiable Instruments Act is a Special Act which overrides the provisions of the Companies Act, the legal liability contemplated under Section 446 of the Companies Act does not synchronise with the criminal proceedings under the Negotiable Instruments Act and the personal criminal liability and not the civil liability of the company is enforced under Section 138 r/w Section 142 of the Negotiable Instruments Act. The company and its Directors cannot shirk their criminal liability on the ground that the company was already wound up and the Official Liquidator had taken charge of the affairs of the company. There is no merit in the contentions of the accused.
16. In the result, the criminal original petitions stand dismissed. Consequently, connected criminal miscellaneous petitions also stand dismissed.