Bombay High Court
M/S Indorama Synthetics (I) Ltd vs State Of Maharashtra And Anr on 6 May, 2016
Equivalent citations: AIRONLINE 2016 BOM 1
Author: S.C. Dharmadhikari
Bench: S.C. Dharmadhikari
Dixit
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL WRIT PETITION NO.1280 OF 2010
Indorama Synthetics (I) Limited, ]
A Company incorporated under the ]
provisions of the Companies Act, 1956, ]
having its Registered Office at 31-A, ]
MIDC Industrial Area, Butibori, ]
Nagpur - 441122, Maharashtra ]
and also having a Branch Office at ]
The Metropolitan, C-26-27, ]
Bandra-Kurla Complex, Bandra (East) ]
Mumbai - 400 051. ig ] .... Petitioner
Versus
1. State of Maharashtra ]
Through the Public Prosecutor, ]
to be served at Public Prosecutor, ]
High Court, Mumbai. ]
]
2. M/s. Amar Polyester Ltd., ]
301, Sampada, Mithakali Six Road, ]
Ahmedabad 380009, ]
Notice to be served to the ]
Official Liquidator, attached to the ]
High Court of Gujarat at Ahmedabad, ]
Gujarat. ]
]
3. G.S. Baldva, Aged, Adult, ]
Occupation : Business, ]
301, Sampada, Mithakali Six Road, ]
Ahmedabad 380009, Gujarat. ] .... Respondents
Mr. Mangesh Patil for the Petitioner.
None for the Respondents.
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CORAM : S.C. DHARMADHIKARI &
DR. SHALINI PHANSALKAR-JOSHI, J.J.
RESERVED ON : 25TH APRIL 2016.
PRONOUNCED ON : 6TH MAY 2016.
JUDGMENT :[Per Dr. Shalini Phansalkar-Joshi, J.]
1. This is a Reference made before us so as to resolve a conflict between two views recorded in two Single Judges' Judgments of this High Court. The question framed for Reference is as follows :-
"Whether the expression 'suit or other proceedings' in Section 446(1) and the expression 'suit or proceedings' in Section 442, under Chapter II of Part VII of the Companies Act,1956, include criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 ?"
2. The facts giving rise for making of this Reference can be stated, in brief, as follows :-
. The Petitioner herein has filed a Criminal Case, being C.C. No.899/SS/2005, in the Court of Metropolitan Magistrate, 21 st Court, Bandra, Mumbai, against Respondent Nos.2 and 3 for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, 2/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:05 ::: (for short "N.I. Act"). Respondent No.2 is the Company registered under the Companies Act, 1956, whereas, Respondent No.3 is its Director.
Cognizance of the offence was taken by the learned Magistrate and the process was issued against, both, Respondent Nos.2 and 3, who appeared and pleaded not guilty, claiming to be tried. The Petitioner thereupon examined its Authorized Representative in support of its case.
3. At this stage, Respondent No.3 filed an application under Section 446(1) of the Companies Act, 1956, (for short "the Act"), inter alia, praying for a direction to the Petitioner to secure leave from the Hon'ble Gujarat High Court, as Respondent No.2-Company was ordered to be wound-up by the said High Court in Company Petition Nos.115 of 2001, 157 of 1997 and 245 of 1997. It was submitted that, in view of Section 446(1) of the Act, the complaint cannot be proceeded with till such time the Petitioner secures leave from the Hon'ble Gujarat High Court to proceed with the complaint. This application came to be resisted by Respondent Nos.2 and 3 on the ground that the Petitioner-Company is ordered to be wound-up after recording plea of Respondent Nos.2 and 3-Accused and hence the application is not maintainable. Both the parties were heard on this application and then relying on the unreported Judgment of this High Court in the case of Suresh K. Jasani Vs. Mrinal Dyeing and Manufacturing Company Limited & Ors. in Criminal Revision 3/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:05 ::: Application No.245 of 1997 [Coram : J.H. Bhatia, J.], learned Magistrate was pleased to hold that, in view of the provisions of Section 446(1) of the Act, the matter could not be proceeded with any more, after the winding-up order. Accordingly, the application preferred by Respondent Nos.2 and 3 was allowed and the Petitioner was directed to secure leave from the Hon'ble Gujarat High Court, which had passed the winding-up order of Respondent No.2-Company, to continue with this proceeding under Section 138 of the N.I. Act.
4. This order of the learned Magistrate dated 2nd December 2008 was challenged by the present Petitioner, Original Accused Nos.2 and 3, before the learned Single Judge of this High Court in Criminal Writ Petition No.1280 of 2010, by submitting that the protection granted under Section 446(1) of the Act aims at safeguarding the assets of the Company, which is wound-up, against the wasteful or expensive litigation and that it does not extend to the criminal proceedings under Section 138 of the N.I. Act.
For advancing this submission, learned counsel for the present Petitioner placed reliance on the decision of another Single Judge of this Court [Coram : F.I. Rebello, J.] in the matter of Firth (India) Vs. Steel Co. Ltd.
(In Liqn.), AIR 1999 Bombay 75, taking a view that Section 446(1) of the Companies Act has no application to proceedings under Section 138 of 4/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: the N.I. Act and hence leave of the Company Court is not necessary for continuing proceeding under Section 138 of N.I. Act.
5. Thus, before the learned Single Judge, two decisions of Coordinate Benches of this High Court were placed taking divergent views on the application of Section 446(1) of the Act to the proceedings under Section 138 of the N.I. Act, viz. (i) in the matter of Firth (India) Vs. Steel Co.
Ltd. (In Liqn.), decided on 4th September 1998 [Coram : F.I. Rebello, J.], reported in AIR 1999 Bombay 75, taking a view that Section 446(1) of the Companies Act is not applicable to proceeding under Section 138 of N.I. Act; and (ii) unreported decision dated 13th February 2007 in Suresh K. Jasani Vs. Mrinal Dyeing and Manufacturing Company Limited & Ors. in Criminal Revision Application No.245 of 1997 [Coram : J.H. Bhatia, J.], taking a view that Section 446(1) of Companies Act applies to proceedings under Section 138 of N.I. Act also.
6. The learned Single Judge of this High Court [Coram : F.I. Rebello, J.] in the matter of Firth (India) (Supra) was considering two Company Applications filed under the Companies Act, 1956. One was under Section 446(1) for leave to prosecute the company under liquidation in respect of the complaints filed under Section 138 of the N.I. Act and the other was under Section 442B of the Companies Act seeking stay of the 5/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: proceedings filed against the company under Section 138 of the N.I. Act.
Para No.3 of the said Judgment deals with the question of law, which was framed in the said decision, and the rival contentions noted thereon. The same reads as follows :-
"3. The question of law which arises is 'whether the expression 'suit or other legal proceedings' in Section 446(1) and the expression 'suit or proceedings' in Section 442, under Chapter II of Part VII of the Companies Act, include criminal complaints filed under Section 138 of the Negotiable Instruments Act?' On behalf of the Companies involved, it is contended, that the expression legal proceedings or other legal proceedings should be given its widest amplitude and must therefore also include criminal proceedings. It is pointed out that if this is not so, a company in winding up would be subject to criminal prosecution. This would defeat the object of Sections 442 and 446 of the Companies Act. Reliance for the same has been placed on Judgments of various High Courts as also on English Law as reported in 1982 (2) ALL ER 882.
On the other hand, it is contended on behalf of the Petitioners in these Company Petitions and others that the expression 'legal proceedings' or 'other legal proceedings' must be read ejusdem generis with the expression 'suit'. If so read, it is pointed out, it can only refer to civil 6/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: proceedings which have a direct bearing on proceedings for winding up of the Company and consequently other legal proceedings must exclude criminal proceedings.
Reliance has been placed on various authorities."
7. After considering these rival submissions and decisions of the Apex Court as well as this Court, the learned Single Judge concluded that the expression 'suit or legal proceeding' or 'any suit or other legal proceeding', used in Section 446(1) and Section 446(2) of the Companies Act, would not include criminal complaint under Section 138 of the N.I. Act.
8. As against it, in the case of Suresh K. Jasani (Supra), which is later in point of time, another learned Single Judge of this High Court [Coram : J.H. Bhatia, J.], while deciding the applicability of Section 446(1) of the Companies Act to proceedings under Section 138 of N.I. Act, has taken exactly diametrically opposite view by holding as follows :-
"4. From the language of Section 446(1), it is clear that when the 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 proceeded with, if already pending at the time of winding up of the order against the company, except by leave of the Tribunal. Words "other legal proceeding" have wide 7/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: connotation and include even the criminal proceeding, which has some relevance with the functioning of the company, particularly about its civil liabilities or contractual liabilities. It is well known that basically the liability of the drawer towards the payee of the cheque is civil in nature. However, to inculcate confidence in the economy of the nation and the transactions entered into with the help of Negotiable Instruments, particularly the cheques, besides the civil liability, the drawer becomes also liable to be punished under Section 138 of the Negotiable Instruments Act if he fails to make payment within specified period after notice that the cheque has been dishonoured. In the present case, there is no doubt that the liability to make the payment was of the company, i.e., respondent no.1. The cheque was actually issued on behalf of the company, by respondent no.6 as director. In view of the failure of the company to make the payment, in spite of notice after the cheque was dishonoured, the complainant was required to file complaint under Section 138 of the Negotiable Instruments Act. Thus, it is clear that proceeding under Section 138 of the Negotiable Instruments Act arose out of civil liability of the company. Therefore, this may be covered by the words 'other legal proceeding' within the meaning of Section 446(1) of the Companies Act."
9. Being faced with these two divergent views taken by the Coordinate Benches of this Court, the learned Single Judge of this High Court thought 8/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: it appropriate to refer the question for decision by the Larger Bench. That is how this matter came to be placed before us for resolving the conflict between the two divergent views in respect of applicability of Section 446(1) of the Companies Act, 1956 to the proceedings under Section 138 of the Negotiable Instruments Act, 1881. A specific question for Reference came to be framed by learned Single Judge, 'as to whether the expression 'suit or other proceedings' in Section 446(1) and the expression 'suit or proceedings' in Section 442, under Chapter II of Part VII of the Companies Act,1956, include criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 ? Thus, the Reference is to ascertain whether the proceedings under Section 138 of N.I. Act stand covered in the expression 'suit or other proceedings', as used in Section 446(1) of the Companies Act and the expression 'suit or proceedings', as used in Section 442 of the Companies Act.
10. As regards Section 442 of the Companies Act, which deals with the power of the Company Court to stay or restrain proceedings against the Company, against which winding-up order is passed, it stands repealed in view of the Companies (Second Amendment) Act, 2002. Hence, its applicability to proceedings under Section 138 of N.I. Act needs no consideration. Reference to that effect has, thus, become infructuous.
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11. As to applicability of Section 446(1) of Companies Act to Section 138 of N.I. Act, it would be useful to reproduce Section 446, which appears in Chapter II of Part VII of the Companies Act, in its entirety.
446. Suits stayed on winding up order.--
(1) When a winding up order has been made or the Official Liquidator has been appointed as provi-
sional liquidator, no suit or other legal proceed-
ing shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Tribunal and subject to such terms as the Tribunal may impose.
(2) Tribunal shall, notwithstanding anything con-
tained in any other law for the time being in force, have jurisdiction to entertain, or dispose of--
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company (including claims by or against any of its branches in India);
(c) any application made under section 391 by or in respect of the company;
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(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or rise in course of the winding up of the company, whether such suit or proceeding has been instituted or is instituted or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960).
(3) [***] (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court."
12. Thus, the scheme of Section 446 makes it clear that the main purpose or object behind Section 446 is that, in respect of a Company in winding-up or where proceedings in winding-up have been filed, the Company Court, now Tribunal, is to see that the assets of the Company are not recklessly given away or frittered, the main duty of the Company Court being to oversee the affairs of the Company to meet the debts of its secured or its unsecured creditors as also of its shareholders and powers have been accordingly conferred on it.
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13. In the case of Sudarsan Chits (I) Ltd. Vs. G. Sukumaran Pillai, AIR 1984 SC 1579, while considering the true scope and ambit of the jurisdiction conferred on a Company Court under Section 446(2)(d) of the Act, the Apex Court held that, "To save the Company, which is ordered to be wound-
up from this prolix and expensive litigation and to accelerate the disposal of winding-up proceedings, the Parliament devised a cheap and summary remedy by conferring jurisdiction on the Court winding-up the Company to entertain Petitions in respect of claims for and against the Company."
14. This view was reiterated by the Apex Court in the case of Central Bank of India Vs. M/s. Elmot Engineering Company, AIR 1994 SC 2358, by observing in Para No.14 of its Judgment as follows :-
"This section aims at safeguarding the assets of a Company in winding up against wasteful or expensive litigation as far as matters which could be expeditiously and cheaply decided by the Company Court are concerned. In granting leave under this section, the Court always takes into consideration whether the Company is likely to be exposed to unnecessary litigation and cost."12/31
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15. One can cite a long line of authorities, thus, to establish that the predominant purpose of the provisions empowering the Court to stay actions against the Companies in liquidation or to seek permission of the Company Court before proceeding with any action launched against the Company, which is already wound-up, is to ensure that the ultimate distribution of the assets of an insolvent company is pari passu among its creditors.
16. As against it, the provisions of Section 138 of the Negotiable Instruments Act, 1881, can be reproduced to the effect as follows :-
138. Dishonour of cheque for insufficiency, etc., of funds in the account:
Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed 13/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: an offence and shall, without prejudice. to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both :
Provided that nothing contained in this section shall apply unless-
(a) the cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course. of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
and;
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
14/31WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: Explanation.-For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability."
17. Thus, the main object of Section 138 of N.I. Act, which can be inferred, is 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 N.I. Act. Hence, it follows that the provisions of Section 446(1) of the Companies Act can have apparently and in essence no application to the proceedings under Section 138 of Negotiable Instruments Act, as it is not a suit or proceeding having direct bearing on the proceedings for winding-up or the assets of the Company.
18. This view can be fortified from the various decisions of the Hon'ble Supreme Court, of our High Court and other High Courts also, some of which are relied upon by learned Single Judge of this Court [Coram : F.I. Rebello, J.] in the matter of Firth (India) (Supra).
19. In the case of S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land and Mills Co. Ltd. (In Liquidation) Vs. V.M. 15/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: Deshpande, Income Tax Officer, Companies Circle I (8), Bombay & Anr., AIR 1972 SC 878, the Supreme Court, while considering the provisions of Section 446 of the Companies Act, vis-a-vis, the provisions of Section 147 of the Income Tax Act pertaining to initiation of reassessment proceedings against a company under liquidation, held that, obtaining of leave from Liquidating Court under Section 446 of the Companies Act is not a condition precedent for initiating reassessment proceedings against a Company under liquidation. While elaborately dealing with the provisions of the Income Tax Act and the terms used in Section 446(1) and (2) of the Companies Act, like, 'other legal proceedings', the Supreme Court has observed as follows :-
"7. Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of S. 446 read as a whole, it appears to us that the expression "other legal proceeding" in sub-section (1) and the expression "legal proceeding" in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court.
The Income-Tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re-assessment of income-tax with which alone we are concerned in the present case.
16/31WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under Section 446 of the Act. The liquidation Court, in our opinion, cannot perform the functions of Income-Tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the Court. The orders made by the Income-tax Officers in the course of assessment or reassessment proceedings are subject to appeal to the higher hierarchy under the Income-tax Act. There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income-tax. It would lead to anomalous consequences if the winding up Court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The argument on behalf of the appellant by Shri. Desai is that the winding up Court is empowered in its discretion to 17/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: decline to transfer the assessment proceedings in a given case but the power on the plain language of Section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of S. 446 must be so construed as to eliminate such startling consequences as investing the winding up court with the powers of an Income- tax Officer conferred on him by the Income-tax Act, because in our view, the legislature could not have intended such a result.
8. The argument that the proceedings for assessment or re-assessment of a company which is being wound up can only be started or continued with the leave of the liquidation Court is also, on the scheme both of the Act and of the Income-tax Act, unacceptable."
20. In the case of Joshi Trading Co. (P.) Ltd. Vs. Essa Ismail Sait, [1980] 50 Kerala 801, the Kerala High Court, while dealing with the issue as to whether for continuing with the proceeding for eviction filed before the Rent Controller, leave of the Company Court under Section 446(1) of the Companies Act was essential, was pleased to hold that, "The object of s. 446 of the Companies Act, 1956, is to see that the assets of the company are brought under the control of the winding up court; to avoid wherever 18/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: possible expensive litigation and to see that all matters in dispute which are capable of being expeditiously disposed of by the winding up court are taken up by that court. This does not, however, mean that all disputes wherein a company is involved should be proceeded with only by the company court or that if they are pending with other statutory bodies, leave of the company court should be obtained. Matters where collection or distribution of assets are not involved, those which are outside the purview of the winding up court and other courts of law and those which are within the exclusive jurisdiction of other statutory bodies may not come under the purview of s. 446.
A proceeding for eviction not being a proceeding which can be appropriately dealt with by the winding up court, does not come under the category of "other legal proceeding" in s. 446(1) and, therefore, leave of the winding up court is not necessary for proceeding with a petition filed against a company in liquidation.
A similar reasoning was adopted in B.V. John Vs. Coir Yarn and Textiles Ltd., [1960] 30 Comp Cas 162 (Ker), which related to proceedings under the Industrial Disputes Act. Raman Nayar J., as he then was, held that a suit or proceeding for which leave is necessary under s. 446(1) must be a suit or proceeding capable of being withdrawn and disposed of by the winding-up court."
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21. In the case of Official Liquidator, Swaraj Motors (P.) Ltd. Vs. Income-Tax Officer, [1972] 42 Comp Cas 96, while considering 'whether leave under Section 446(1) of the Companies Act would be necessary to proceedings regarding reassessment and imposition of penalty under Income Tax Act in respect of the company in liquidation ?', it was held that the said section would apply only to a legal proceeding in respect of a matter which the Company Court has got jurisdiction to entertain and dispose of and those matters are enumerated in sub-section (2) of Section 446 of the Companies Act. It was observed therein that, "The object of sub-section (1) is to prohibit the initiation or continuance of any suit or legal proceeding in respect of such a matter in any other forum without the leave of the winding-up court. If such a prohibition is not enacted in the light of the jurisdiction conferred on the winding-up court by sub-section (2) of section 446, there would be conflict of proceedings and conflict of decisions. Sub-section (1) is intended to avoid such a situation; and it confers the ultimate control in the matter on the winding up court which is entrusted with the function of collecting and distributing the assets of the company according to law.
22. The Division Bench of the Calcutta High Court also in the case of Mukerjee (S.N.) Vs. Krishna Dassi, [1933] 3 Comp Cas 269, while dealing 20/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: with Section 171 of Indian Companies Act, 1913, predecessor of Section 446(1) of the Companies Act, 1956, held that;
"Section 171 of Indian Companies Act, 1913, was intended to safeguard the company's assets against wasteful and expensive litigation with regard to the matters which are capable of determination more expeditiously and more cheaply in the winding up and that the provision is not meant to override Section 145 of the Cr.P.C. which empowers the criminal court to enquire into claims as regards actual possession."
23. The Division Bench of Madras High Court in the case of Price (R.G.N.), Official Liquidator, Andhra Paper Mills Co. Ltd. Vs. M. Chandrasekharan, [1951] 21 Comp Cas 251 (Mad), went to the extent of saying that, "Section 171, Indian Companies Act, 1913, had no application to enquiries, investigations and orders made either by Government or statutory bodies in exercise of statutory powers."
24. Thus, the sum and substance of all these judicial decisions is that the provisions of Section 446(1) of the Companies Act are to be invoked judiciously only when it has got any concern with either the winding-up 21/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: proceedings or with the assets of the Company. The expression "suit or other proceedings", therefore, as used in Section 446(1) of the Companies Act, has to be construed accordingly and not to be interpreted so liberally and widely so as to include each and every proceeding of whatsoever nature initiated against the Company, including even the criminal proceedings like for the offence under Section 138 of N.I. Act, which has got no bearing on the winding-up proceedings of the Company and are not concerned with, directly with the assets of the Company, but are mainly dealing with the penal and personal liability of the Directors of the Company.
25. The conflict involved in the case can also be looked into from another aspect 'as to whether the provisions of Section 138 of N.I. Act can override the provisions of 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 ?'
26. In this respect, one can place reliance on the decision of the Hon'ble Supreme Court in Damji Valji Shah Vs. Life Insurance Corporation of India, [1965] 35 Comp Cas 755 (SC). In the said case the question before the Supreme Court was, 'whether the provisions of 22/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: Life Insurance Corporation Act will override the provisions of the General Act i.e. the Companies Act, 1956, which is relating to the Companies in general?' It was held by the Supreme Court that, Life Insurance Corporation Act pertaining to LIC, which is also a Company within the ambit of Companies Act, is the Special Statute, whereas, Companies Act is the General Statute relating to all companies in general. Therefore, the provisions of Section 446 of the Companies Act cannot override the provisions of Life Insurance Corporation Act.
27. The similar question fell for consideration before the Hon'ble Supreme Court in the case of Allahabad Bank Vs. Canara Bank & Anr., AIR 2000 SC 1535, in respect of the provisions of Recovery of Debts Due to Banks and Financial Institutions Act, 1993, (for short "RDB Act"). A specific question was raised for consideration in this case, 'as to whether the RDB Act override the provisions of Sections 442, 537 and 446 of the Companies Act?' and relying on its earlier above said decision of Damji Valji Shah and having regard to the non-obstante clause contained in Section 34 of the RDB Act, it was held that, the Companies Act being a General Statute, whereas, RDB Act being a Special Statute, has an overriding effect on the General Act. Alternatively, it was held that even if the Companies Act and RDB Act, both, be treated as Special Laws, the 23/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: principle that when there are two Special Laws, the later would normally prevail over the earlier, if there is a provision in the later Special Act giving it overriding effect, can also be applied. In view of the fact that there was such special provision containing non-obstante clause in Section 34 of the RDB Act, it was held that the said Act, being subsequent enactment, and in view of the non-obstante clause therein, it would prevail over Sections 442 and 446 of the Companies Act. Accordingly, it was concluded that, so far, for the proceedings under RDB Act, no leave of the Company Court, as contemplated under Section 446(1) of the Companies Act, is necessary.
28. If one considers the provisions of Section 138 of the N.I. Act, which are introduced subsequently by way of amendment in the said Act, in the year 1988, it being a subsequent Statute, it will necessarily override the provisions of General Statute, like, the Companies Act.
29. Learned counsel for the Petitioner in this case has also relied upon the decision of Orkay Industries Limited & Ors. Vs. State of Maharashtra & Ors., 1998 (2) Mh.L.J. 910. The Division Bench of this Court, while dealing with the application of Section 446(1) of the Companies Act to proceeding under Section 138 of N.I. Act, has 24/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: observed that, what was directly in issue in the case filed under Section 138 of the N.I. Act was the Company being liable for prosecution on dishonour of the cheques issued by its Directors. The commission of offence under Section 138 is not dependent on winding-up of the Company, but is dependent upon dishonour of cheque and non-payment of the amount within fifteen days from the receipt of the notice. The offence under Section 138 of N.I. Act is complete after the ingredients of Section 138 are satisfied and, therefore, mere filing of Petition for winding-
up of the Company would not result into staying of the said proceedings.
Even when the order of winding-up is passed or the order is made appointing a provisional liquidator, it can have no effect under the proceedings under Section 138 of N.I. Act.
30. Thus, there is a long line of decisions making the position clear that the expression 'suit or legal proceedings', used in Section 446(1) of the Companies Act, can mean only those proceedings which can have a bearing on the assets of the companies in winding-up or have some relation with the issue in winding-up. It does not mean each and every civil proceedings, which has no bearing on the winding-up proceedings, or criminal offences where the Director of the Company is presently liable for penal action.
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31. After taking note of all these decisions and, especially, relying on the decision of the Apex Court in the case of S.V. Kondaskar (Supra), it was held by learned Single Judge of this Court [Coram : F.I. Rebello, J.] in the matter of Firth (India) (Supra), that the expression "legal proceedings" or "other legal proceedings" for the purpose of Sections 442 and 446 must be read ejusdem generis with the expression 'suit' and can mean only civil proceedings which have a bearing in so far as the winding-
up is concerned, namely, realization of the assets and discharge of liabilities of the Company. Hence, the proceedings under Section 138 of N.I. Act, which are in the nature of a criminal complaint and not directly against the assets of the Company, cannot be included in the terms "suit or other legal proceedings", as used in Section 446(1) of the Companies Act.
32. The similar view was taken by the Kerala High Court also in its decision in Jose Antony Kokkad Vs. Official Liquidator, High Court of Kerala Kochi and Anr., 1998 Cri.L.J. 4095, relied upon by learned counsel for Petitioner, by observing that, "The provisions of Section 446 of the Companies Act are intended to safeguard the assets of the Company 26/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: 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 S. 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 S. 138 of the Negotiable Instruments Act. Moreover, the provisions of S. 446 of the Companies Act are not 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.
Section 138 has overriding effect against S. 446 of the Companies Act. Chapter XVII dealing with penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts consisting of Ss. 138 to 142 in incorporated in the Negotiable Instruments Act by the 27/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: Central Act 66 of 1988 with effect from 1-4-1989. 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 S. 446 were in force.
Therefore, it has to be presumed that the Parliament enacted those provisions fully aware of the provisions of the Companies Act including S. 446. Therefore, the subsequent Act enacting certain special provisions has got overriding effect over the previous statute though contained the special provisions."
33. Accordingly, it was held that the proceedings under Section 138 of N.I. Act cannot be stayed for want of leave of the Company Court under Section 446(1) of the Companies Act.
34. As regards the decision of the learned Single Judge of this Court [Coram : S.M. Jhunjhunuwala, J.] in the case of Central Bank of India Vs. Elmot Engineering Co. Pvt. Ltd. & Ors., 1993 MH.L.J. 671, the issue raised for consideration was, 'whether the leave of the Company Court under Section 446(1) of the Companies Act was essential to continue to prosecute the suit filed to realize mortgaged debt and other securities created by the Company?' In the light of the same, it was held 28/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: that, as the object of Section 446(1) is to see that the assets of the Company are brought under the control of the winding-up court to avoid, wherever possible, expensive litigation and to see that all matters in dispute, which are capable of being expeditiously disposed of by the winding-up court, are taken up by that court. Accordingly, it was held that Section 446 of the Companies Act, which is wide enough and is not restricted to any category of suits or any class of plaintiffs, to cover all suits and other legal proceedings, whoever may be the plaintiff. Thus, it is clear that in the said decision, the proceedings were of a civil nature and against the assets of the Company and, therefore, it was held that the provisions of Section 446 of the Act will be applicable. This decision, thus, can be distinguishable, where the issue is in respect of the specific criminal proceedings filed under Section 138 of N.I. Act imposing criminal and penal liability on the Directors of the Company for dishonour of the cheque and not dealing with the assets of the Company.
35. Coming next to the Judgment of the learned Single Judge of this Court [Coram : J.H. Bhatia, J.] in the case of Suresh K. Jasani (Supra), taking a contrary view by holding that the words "other legal proceedings"
have wide connotation and include even the criminal proceeding, which has some relevance with the functioning of the Company, particularly 29/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 ::: about civil liabilities or contractual liabilities, it can be seen from the perusal of the said Judgment that all these earlier decisions of this Court, other High Courts and of the Apex Court were not brought to the notice of the learned Single Judge. Para No.2 of the Judgment reveals that, though the matter was adjourned repeatedly for hearing, none appeared for the Petitioner or for Respondent Nos.1 and 2. As a result, without their assistance, the learned Single Judge was required to dispose of the matter, after going through the record. Hence, it goes without saying that, these earlier decisions of this Court and of the Apex Court were not brought to the notice of the learned Single Judge.
36. In our considered opinion, having regard to the earlier decisions referred above, taking a consistent view, which is in consonance with the spirit, purpose and object of the provisions of Section 446(1) of the Companies Act and Section 138 of the Negotiable Instruments Act, we uphold the view taken by the Single Judge in the matter of Firth (India) (Supra) and accordingly proceed to answer the Reference placed for our consideration, as follows :-
"The expression "suit or other proceedings" in Section 446(1) under chapter II of Part VII of Companies Act, 1956, does not include criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881."30/31
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37. Having answered the Reference, accordingly, we direct the Office to place the matter before the learned Single Judge again for deciding Writ Petition No.1280 of 2010, in which this Reference was made.
[DR. SHALINI PHANSALKAR-JOSHI, J.] [S.C. DHARMADHIKARI, J.] 31/31 WP-1280-10.doc ::: Uploaded on - 06/05/2016 ::: Downloaded on - 07/05/2016 00:02:06 :::