TMI Blog2016 (5) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondents : None 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, 21st Court, Bandra, Mumbai, against Respondent Nos.2 and 3 for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 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 Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct needs no consideration. Reference to that effect has, thus, become infructuous. 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 provisional liquidator, no suit or other legal proceeding 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 contained 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; (d) any question of priorities or any other question whatsoever, whether of law or fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The fact that after the amount of tax payable by an assessee has been determined or q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets of the Company 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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