Supreme Court - Daily Orders
V.K. Jain vs Ksl And Industries on 11 April, 2016
Author: A.K. Sikri
Bench: A.K. Sikri, R.K. Agrawal
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 663 OF 2016
(ARISING OUT OF S.L.P. (CRL.) NO. 7103 OF 2013)
V.K. JAIN .....APPELLANT(S)
VERSUS
KSL & INDUSTRIES LTD. & ORS. .....RESPONDENT(S)
JUDGMENT
A.K. SIKRI, J.
Leave granted.
2) Since counsel for both the parties were ready to argue the matter finally at this stage itself, after hearing them at length, we proceed with the order that needs to be passed in this appeal.
3) The issue involved in the present case: After the appointment of the Official Liquidator in a winding up petition, whether the erstwhile Director represent the company in a criminal Signature Not Verified Digitally signed by NIDHI AHUJA Date: 2016.07.20 17:54:45 IST proceeding?
Reason:
4) The appellant in the present case is the erstwhile Managing Criminal Appeal No. 663 of 2016 Page 1 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) Director of the company known as Shristi Videocorp Ltd. (accused No.1). In the year 1996, respondent No.1 company filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the appellant and seven other Directors of accused No.1 on account of dishonour of cheques. Since the appellant was impleaded as accused No.3 in the said complaint, he appeared before the Court. However, in the month of August 1999, accused No.1 was wound up and an Official Liquidator was appointed. The appellant states that respondent No.1 was aware of the appointment of the Official Liquidator but did not take steps for impleadment. In the year 2008, a writ petition was filed wherein some of the accused in the complaint questioned their prosecution. A stay order has been granted against accused Nos. 7 and 8 in the complaint while it was informed that accused No.5 had expired. In October 2012, an application was made by respondent No.1 for separation of trial against the appellant. This application was decided vide order dated November 02, 2012 wherein it was noted that the matter had been pending for long and only the appellant was present in the Court. It was also observed that since accused No.1 had been wound up, the matter would proceed only qua the appellant herein. The appellant has moved an application for exemption from personal appearance Criminal Appeal No. 663 of 2016 Page 2 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) since an Official Liquidator has already been appointed. The trial court, by order dated January 04, 2013 observed that since the appellant was a signatory to the cheque, it directed the appellant to appear and represent accused No.1 before it.
5) According to the appellant, once an Official Liquidator is appointed, the appellant ceased to function as the Managing Director of the accused company and is, thus, barred to represent the Company. The appellant, therefore, moved an application before the trial court seeking modification of the condition imposed by its order. The trial court, by order dated June 25, 2013 rejected this application on the ground that the cause of action arose in the year 1996 whereas the winding up proceedings against accused No.1 were initiated in the year 1998. It held that the petitioner could not be absolved from his liability for an offence which was committed prior to the appointment of the Official Liquidator and no other person, apart from the appellant, could be prosecuted. It further held that the Official Liquidator could not be asked to step into the shoes of the Directors to defend the prosecution for the offence which took place prior to his appointment when the Directors were in-charge of the affairs of the company. The trial court noted that an application was Criminal Appeal No. 663 of 2016 Page 3 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) moved by respondent No.1 by which the trial against the appellant was separated from that against accused No.1. While placing reliance of a judgment of this Court in Aneeta Hada etc. v. Godfather Travels & Tours Pvt. Ltd. & Ors. 1, it was observed that the matter was pending before accused No.1 and hence the matter could be prosecuted against both wherein the appellant would represent accused No.1 along with himself. Reliance placed by the appellant on Section 491 of the Companies Act, 1956 (hereinafter referred to as the '1956 Act') was held to be unfounded as it was stated that the Official Liquidator could not be made answerable for the acts of accused No.1 company prior to his appointment. Since the defence under Section 446 of the 1956 Act was not pleaded, it was held that the decision in Nagarjuna Finance Ltd., Hyderabad v. Kanosika Laboratories Ltd. & Anr.2 could not be made applicable.
6) Aggrieved by the aforesaid order of the trial court, the appellant filed a writ petition before the High Court of Bombay. The High Court upheld the order of the trial court and dismissed the writ petition by order dated July 30, 2013 holding that at the relevant time the appellant was the Managing Director of accused No.1 company and the cheque was consciously issued in discharge of 1 (2012) 5 SCC 661 2 AIR 1998 AP 396 :: (1998) 2 AP LJ 395 Criminal Appeal No. 663 of 2016 Page 4 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) a legally enforceable liability and the effect of appointment of the Official Liquidator would not create impediment in prosecution faced by accused No.1 company as the appointment of the Official Liquidator is subsequent to the filing of the complaint. The High Court further held that reliance placed by the appellant on the judgment of the Calcutta High Court in O.N. Goenka v. State of West Bengal & Anr.3 was misplaced.
7) Feeling aggrieved, the appellant filed the special leave petition in which Notice was issued on September 09, 2013 and the impugned order stayed. Official Liquidator was directed to be impleaded as a party respondent. No counter affidavit has been filed. In any case, learned counsel appearing for respondent No.1 submitted that since the appeal involves a pure question of law, counter affidavit is not even required.
8) We may recapitulate that the appellant is directed to continue in the capacity as the Managing Director of accused No.1 company and to represent the company in the proceedings under Section 138 of the Negotiable Instruments Act, which are launched by respondent No.1. It would be pertinent to mention that the appellant was not impleaded in his individual capacity on any 3 CRR No. 1514 of 2002 decided on June 12, 2003 Criminal Appeal No. 663 of 2016 Page 5 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) ground whatsoever, i.e. no case is set up by respondent No.1 claiming that the appellant as Managing Director and signatory of the cheque in question was in-charge of the affairs of the company and was, therefore, liable in his personal capacity as well. Had that been pleaded, legal position would have been different and the reasoning given by the High Court could become relevant. However, the only stance taken by respondent No.1 is that the appellant should continue in the proceedings as representative of the company as its erstwhile Managing Director. The courts below have accepted the plea of respondent No.1. Whether this is admissible in law or not is the question.
9) In order to answer the aforesaid question, it would be necessary to glance through some of the provisions of the 1956 Act, which was the Act that was governing the field at the relevant time. These are, Sections 2(30), 445(3), 457(1)(a), 468 and 491 and we reproduce those provisions hereunder:
“Section 2(30) “officer” includes any director, manager or secretary, or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act;” Section 445 Copy of winding up order to be filed with Registrar. – (1) On the making of a winding up order, it shall be the duty of the petitioner in the Criminal Appeal No. 663 of 2016 Page 6 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) winding up proceedings and of the company to file with the Registrar a certified copy of the order, within thirty days from the date of the making of the order.
xx xx xx (3) Such order shall be deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continued.
Section 457 Powers of liquidator. – (1) The liquidator in a winding up by the Tribunal shall have power, with the sanction of the Tribunal, –
(a) to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company;
xx xx xx
Section 468
Delivery of property to liquidator. – The Tribunal may, at any time after making a winding up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent, officer or other employee of the company, to pay, deliver, surrender or transfer forthwith or within such time as the Tribunal directs, to the liquidator, any money, property or books and papers in his custody or under his control to which the company is prima facie entitled.
Section 491 Board's powers to cease on appointment of liquidator. – On the appointment of a liquidator, all the powers of the Board of directors and of the managing or whole-time directors and manager, if there be any of these, shall cease except for the purpose of giving notice of such appointment to the registrar in pursuance of section 493 or insofar as the company in general meeting or the liquidator may sanction the continuance thereof.” Criminal Appeal No. 663 of 2016 Page 7 of 12 (arising out of SLP (Crl.) No. 7103 of 2013)
10) The scheme of the Act, surrounding the issue at hand, that can be discerned from the aforesaid provisions may be summarised.
11) A company incorporated under the 1956 Act is a separate legal entity independent of its shareholders. Since it is not a natural person and is a body corporate, it acts through the Board of Directors consisting of various kinds of Directors who are elected by the shareholders in the Annual General Meeting or appointed as per its constitution. The functioning of a company is governed by its Memorandum of Association and Articles of Association. There are various modes of winding up of a company which are provided under Section 425 of the 1956 Act. Circumstances in which a company may be would up are in Section 433 of the 1956 Act. For this purpose, a winding up petition is to be filed before the High Court and the designated Company Judge in the High Court is empowered to order winding up. Consequences of winding up order passed by the High Court are stipulated in the provisions contained in Sections 444 to 447. When such an order is passed, it has to be communicated to the Official Liquidator as well as Registrar of Companies {Section 444}. It is mandated by Section 445 that copy of the winding up order is to be filed with Registrar within 30 days from the date of making such an order. Criminal Appeal No. 663 of 2016 Page 8 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) The moment this order is filed with the Registrar, it is deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continuing. Thus, one of the important consequence of order of winding up is that insofar as officers and employees of the wound up company are concerned, they stand discharged, meaning thereby even the Board of Directors stand dissolved and erstwhile Directors (including Managing Director) cease to hold such a position which is specifically stipulated in Section 491 of the Act. On the other hand, the Official Liquidator is appointed by the Court on the terms and conditions that may be specified by the Court {Section 448}. The Official Liquidator takes charge of the affairs of the company, inter alia, for the purpose of liquidating the company. The Official Liquidator appointed becomes the liquidator of the company by virtue of his office {Section 449}. Powers of the liquidator are stipulated in Section 457 and clause
(a) of sub-section (1) thereof, as extracted above, includes the power to institute or defend any suit, prosecution, or other legal proceedings, civil or criminal, in the name and on behalf of the company (in liquidator). Thus, from the date of appointment of the liquidator, it is the liquidator who is to defend all kinds of legal proceedings, including criminal proceedings. He is the custodian Criminal Appeal No. 663 of 2016 Page 9 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) of the properties of the company as well {Section 468} and in this behalf, it is the High Court which has to pass directions to any contributory, trustee, receiver, banker, agent as well as officer or other employees of the company to pay, deliver, surrender or transfer forthwith or within such time as the High Court directs, the properties or books of accounts etc. to the liquidator which the company is prima facie entitled {Section 468}.
12) It, thus, becomes abundantly clear from the reading of the aforesaid provisions that after the order of winding up of a company and the appointment of the liquidator, no Director or officer or employee of the company has any right to continue or represent the company. This function is specifically assigned only to the Official Liquidator. Thus, it is the Official Liquidator who is to represent the company (in liquidation) under Section 305 of the Code of Criminal Procedure, 1973.
13) For the aforesaid reasons, we find that the view taken by the High Court in the impugned judgment, affirming the order of the trial court, is palpably erroneous and against the provisions of law. We, accordingly, allow this appeal and set aside the orders of the courts below making it clear that it is only the Official Liquidator who would represent the company in the proceedings that are Criminal Appeal No. 663 of 2016 Page 10 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) initiated by respondent No.1. We again make it clear that we have not touched the issue of personal liability, if any, of an erstwhile liability and limited our discussion to the issue as to who is competent to represent a company in liquidation.
.............................................J. (A.K. SIKRI) .............................................J. (R.K. AGRAWAL) NEW DELHI;
APRIL 11, 2016.
Criminal Appeal No. 663 of 2016 Page 11 of 12 (arising out of SLP (Crl.) No. 7103 of 2013) ITEM NO.43 COURT NO.11 SECTION IIA S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Petition(s) for Special Leave to Appeal (Crl.) No(s). 7103/2013 (Arising out of impugned final judgment and order dated 30/07/2013 in CRLWP No. 2617/2013 passed by the High Court Of Bombay) V.K. JAIN Petitioner(s) VERSUS KSL AND INDUSTRIES LTD. AND ORS. Respondent(s) (with appln. (s) for stay and office report) (for final disposal) Date : 11/04/2016 This petition was called on for hearing today. CORAM :
HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE R.K. AGRAWAL For Petitioner(s) Mr. Shekhar Naphade, Sr.Adv.
Mr. E. C. Agrawala,AOR.
Mr. Rajesh Kumar, Adv.
For Respondent(s) Mr. Dilip Ammasaheb Taur, Adv.
Mr.Amol V.Deshmukh, Adv.
Ms. Kanchan Vohra, Adv.
Mr. Anil Kumar,AOR.
For O.L. Mr. Bankey Bihari,AOR.
UPON hearing the counsel the Court made the following O R D E R Leave granted.
The appeal is allowed in terms of the signed Judgment. Application(s) pending, if any, shall stand disposed of accordingly.
(SHEETAL DHINGRA) (TAPAN KR.CHAKRABORTY) AR-cum-PS COURT MASTER
[Signed non-reportable Judgment is placed on the file] Criminal Appeal No. 663 of 2016 Page 12 of 12 (arising out of SLP (Crl.) No. 7103 of 2013)