TMI Blog1987 (9) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... a Financiers Pvt. Ltd., which is a private limited company, was floated with fixed capital of Rs. 1 lakh divided into 1,000 ordinary shares of Rs. 100 each. Its object was to promote a scheme of chit fund and savings, amongst others. It appears that the company had accepted deposits from the public under different schemes. The company gave advances against industrial and residential properties. After some time, the company ran into difficulties somewhere in April, 1977. At that time, the public deposits of the company were more than Rs. 6,50,00,000 as stated in Company Petition No. 18 of 1978 which was moved in this court for sanctioning a scheme of compromise or arrangement. As the company was in financial difficulties, the aforesaid scheme of arrangement and compromise was moved under section 391 of the Companies Act. It was registered as Company Petition No. 18 of 1978. In that company petition, after hearing learned counsel for the concerned creditors, the scheme was permitted to be put to vote by different classes of creditors and ultimately, this court (coram : B.K. Mehta J.) sanctioned the said scheme of compromise and arrangement by its order dated December 28, 1978, Januar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hief Metropolitan Magistrate, 37th Court, Esplanade, Bombay. It is submitted that the said complaint was filed by the first opponent on August 2, 1977, at L.N. Marg Police Station and after making investigation, a charge-sheet was filed against the applicants in the Metropolitan Magistrate's court at Bombay. The charge-sheet is filed under section 420, Indian Penal Code, on the ground that the first opponent was cheated by the applicant-directors of the company and that he was duped to part with his money. It appears that in the said case, the learned Magistrate was pleased to pass an order on February 23, 1984, whereby he declined to frame any charge against the applicants and they were discharged. The first opponent, therefore, challenged the said order by filing a revision application, being Revision Application No. 136 of 1984, in the Court of Session at Bombay and the said court was pleased to set aside the order of discharge and remand the matter back to the trial court for proceeding on merit. After the case was sq remanded, the present applicants made an application on September 6, 1985, before the trial court praying for stay of the proceedings on the ground that this cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application. In this case, earlier, B.K. Mehta J., by his order dated October 14, 1985, issued rule and granted ad interim directions in terms of para (A) of the summons. All future proceedings in the criminal case were stayed pending the hearing of the application. Opponent No. 1, when served with the rule, appeared through his learned advocate, Mr. B.R. Parikh. He has filed his affidavit-in-reply. It has been submitted that the criminal complaint has been filed against the applicant-directors of Divya Vasundhara Financiers P. Ltd. for an offence under section 420, Indian Penal Code, and a charge is framed against the applicants as per the remand order of the learned Sessions Judge at Bombay. The earlier order of the High Court staying various proceedings does not apply to the present case as no such stay was prayed for before B.K. Mehta J. in Company Application No. 10 of 1978. He further stated that the provisions of section 391(6) of the Companies Act are applicable to suits or other legal proceedings by or against the company and criminal proceedings are kept outside the purview of the section. It is contended that if such proceedings are stayed, it would cause irreparable d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first point is concerned, the relevant provisions of section 391 will have to be noted at the outset. They provide as under : "391(1) Where a compromise or arrangement is proposed : ( a )between a company and its creditors or any class of them ; or ( b )between a company and its members or any class of them ; the court may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs. (2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act. Therefore, we have to refer to the general meaning of the term "proceeding" as gathered from the dictionary and as understood in common parlance. In this connection, I may refer to a decision of the learned single judge of the Punjab and Haryana High Court in the case of Workmen of M/s. Bali Singh v. Management of M/s. Bali Singh, AIR 1969 P H 174. The question before the learned single judge of that court in that case was whether the provisions of section 93 of the Punjab Reorganisation Act, 1966, covered the proceedings pending before the Labour Court or the Industrial Tribunal under the Industrial Disputes Act. Section 93 of the said Act provided that "every proceeding pending immediately before the appointed day before a court (other than a High Court), Tribunal, authority or officer in any area which on that day falls within a State or Union Territory shall, if it is a proceeding relating exclusively to the territories which as from that day are the territories of another State or Union Territory, stand transferred to the corresponding court, Tribunal, authority or officer in that other State or Union Territory, as the case may be." It was contended before the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te for trial to itself. Having referred to sub-section (3) of section 446, the following observations were made (at page 542) : "This shows that once a proceeding by or against a company has become a pending proceeding in any court, it can be transferred to the court which is winding up a company. Forinstance, if the present complaint is filed before a Magistrate who takes cognizance of it, then the case would become a pending case before a Magistrate and could be transferred to this court under section 446(3), if the court thought it fit to transfer the same." Another section which can be usefully referred to in this connection is section 633 of the Act. It deals with the power of the court to give relief in certain cases. Section 633(1) and the proviso thereof read as under : "633(1). If in any proceeding for negligence, default, breach of duty, misfeasance or breach of trust against an officer of a company, it appears to the court hearing the case that he is or may be liable in respect of the negligence, default, breach of duty, misfeasance or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude in its sweep even criminal proceedings as seen from the settings of various provisions of the Companies Act and even from the point of view of the general meaning of "proceeding" as understood in common parlance. The second reason given by the learned single judge of the Bombay High Court is that there were three classes of creditors, namely, ( i ) creditors who were the subscribers of the terminated chit group ; ( ii ) creditors who are the subscribers of the existing group ; and ( iii ) other creditors of the company. In the case before the Bombay High Court, a proposal was put forward by the company for a compromise or an arrangement. Nothing had been pointed out to the learned judge that the company's proposal referred to or covered any criminal proceedings against the company and its officers. The provisions of sub-sections (1) and (2) of section 391 lay down that if any proposal is put forth by a company or a creditor or class of creditors or a member or class of members, the same was required to be considered under the directions of the court by calling, holding and conducting a meeting or meetings, and if approved by a majority in number representing three-fourths ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such a conclusion does not flow from the express language of section 391(6). The third reason which appealed to the learned judge of the Bombay High Court was that if the officers of the company were to be held responsible for contravention and infringement of the Income-tax Act or the Foreign Exchange Regulation Act, can a company, by putting a proposal before the court, under section 391, seek the protection of the court under sub-section (6) of section 391 and stay the pending prosecutions or prevent the authorities under the Income-tax Act or the Enforcement Directorate from launching prosecution? Now, so far as this difficulty envisaged by the learned single judge is concerned, it is obvious that in any case, the court may, in its view, find that there is no case for staying these criminal proceedings. On the other hand, the court may find that if these proceedings are allowed to go on, they may jeopardise the smooth working of the scheme. In such an eventuality, it cannot be said that the court will have no power at all under the very wide wording of sub-section (6) of section 391 to stay such proceedings. It is easy to visualise that if criminal proceedings are initiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 392 of the Act, the High Court has power to enforce the compromise and arrangement from the beginning to the end. The court, at the time of making such order or at any time thereafter, may give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. Armed with such powers, the court can certainly stay, in a proper case, pending criminal proceedings against the company or its directors with a view to seeing that the proposed scheme of compromise and arrangement which may be ultimately sanctioned, is properly worked out. There is ample power under section 392(1)( b ) itself which enables the High Court to give proper directions in regard to any matter which may also include staying criminal proceedings which might have been filed against the company and the directors even after sanctioning of the scheme and before the scheme has been finally worked out. It has also to be kept in view that the High Court, as a company court, has inherent power to pass appropriate orders in the interests of justice and the requirements of the case. Rule 10 of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same by majority. Therefore, there would remain no occasion for learned advocate for the applicant to submit that even the present opponent No. 1 would be bound by the decision of the majority of the creditors who have voted for the scheme. However, the submission of Mr. Soparkar, that from the point of view of propriety and convenience even this criminal case should be stayed, requires closer security. The order passed by B.K. Mehta J. itself shows that he was pleased to stay various civil proceedings pending between the creditors of the company on the one hand and the company and its directors on the other pending the working out of the present scheme by this court and even criminal cases filed by various creditors against the company and the directors in different courts were stayed including one criminal case in the Court of the Metropolitan Magistrate, Bombay. Thus, from the point of view of propriety, it is just and proper for me to fall in line with the earlier order passed by B.K. Mehta J. in this very scheme proceeding. Now remains the question as to whether the proceedings should be permitted to be stayed wholly or whether limited stay should be granted. Mr. Parikh ..... 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