2018 (2) TMI 2110 - HC - Companies Law

Doctrine of purposive interpretation - alleged violation of under Sections 372 A 85(3) r/w 211 and Schedule II of the Companies Act 1956 by which the petitioners herein were asked to show cause - seeking to invoke Section 463(2) of the Companies Act 2013 - HELD THAT - The principle governing the interpretation of the statute has reached the stage where the Courts interpreted a provision of legislation notwithstanding its nature be it penal revenue social or otherwise. It is more so when the rule of interpretation while applied against a reasonable and harmonious one does not stand to reason or leading to absurdity. A principle of natural justice has to be read into and seen in any provision unless expressly conferred taking its own rationale behind it. The said principle is to be applied with more rigour in a case where the show cause notice was given followed by explanation a consequential decision was made without passing orders thereon. This Court is of the considered view that when once the show cause notice is issued then it would amount to initiation of the proceedings qua negligence default breach of duty etc. However the same would not be applicable to a criminal action. The decision to initiate a criminal proceeding would naturally come on a factual finding resulting in the final order to be passed by the first respondent on a consideration of the reply given to the show cause notice. Therefore the first respondent has to pass a reasoned order on two aspects. One is on merit with respect to the negligence default etc attributable on the part of the officer and the second is with respect to the decision made to proceed under the criminal law. These two factors are mandatory as the Court under Section 463(2) of the Companies Act 2013 is only required to say as to whether the officer has acted honestly and reasonably after finding the negligence on his part by the first respondent - This Court is of the view that the power to go into the question of negligence default breach of duty etc. does not lie with this Court as it is the role which is to be played by the first respondent. However the issue pertaining to an officer having acted honestly and reasonably solely lies with this Court to be decided as against the petitioner concerned. To put it differently such an issue can never be gone into by the first respondent as against this Court. Thus the first respondent cannot decide the issue of taking criminal action without a factual finding resulting in a final order to be communicated to the petitioner. After all a show cause notice issued should result in an adjudication process for which a person whose rights are liable to be affected has to be informed by a decision supported by reasons on a consideration of the reply given. Therefore it is mandatory on the part of the first respondent to see to it that such an order is passed and served on the officer against whom a criminal proceedings is likely to be initiated by giving a private complaint. Even otherwise the decision is necessarily to be communicated by the first respondent. The first respondent is directed to pass appropriate reasoned orders on a consideration of the reply given by the petitioners concerned - Petition disposed off.

Summary

Issues Involved:
1. Jurisdiction and power of the High Court under Section 463(2) of the Companies Act, 2013.
2. Prematurity of the petitions filed by the petitioners.
3. Requirement of a reasoned order by the first respondent before initiating criminal proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction and Power of the High Court under Section 463(2) of the Companies Act, 2013:

The petitioners, who are Ex-Directors and present Directors of a company, sought relief under Section 463(2) of the Companies Act, 2013, apprehending criminal action for alleged violations under Sections 372 A 85(3) r/w 211 and Schedule II of the Companies Act, 1956. The petitioners contended that the High Court has the power to grant relief akin to the power under Section 463(1) of the Companies Act, 2013, which allows the Court to relieve an officer from liability if they acted honestly and reasonably.

The Court clarified that Section 463(2) specifically empowers the High Court to grant relief concerning the honesty and reasonableness of the officer's actions, distinct from the power under Section 463(1), which involves determining liability for negligence, default, breach of duty, misfeasance, or breach of trust.

2. Prematurity of the Petitions Filed by the Petitioners:

The respondent argued that the petitions were premature since only show cause notices were issued, and no final order or criminal proceedings had been initiated. The Court agreed, stating that the issuance of a show cause notice does not constitute the initiation of criminal proceedings. It emphasized that the High Court's intervention at this stage would undermine the first respondent's authority to adjudicate the matter.

3. Requirement of a Reasoned Order by the First Respondent Before Initiating Criminal Proceedings:

The Court highlighted the necessity for the first respondent to pass a reasoned order after considering the petitioners' replies to the show cause notices. It underscored that such an order is crucial for ensuring that the petitioners are informed of the reasons leading to any decision, particularly when it involves potential criminal consequences. The Court mandated that the first respondent must communicate the final order to the petitioners before initiating any criminal action.

Conclusion:

The Court concluded that the petitions were premature and directed the first respondent to pass appropriate reasoned orders on the petitioners' replies to the show cause notices. It stipulated that any criminal proceedings should only be initiated after serving the final decision on the petitioners. The Court disposed of the petitions and closed the connected applications.