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2016 (5) TMI 520 - BOMBAY HIGH COURT

2016 (5) TMI 520 - BOMBAY HIGH COURT - TMI - Inclusion criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 to 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 - Held that:- 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 .....

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hikari And Dr. Shalini Phansalkar Joshi, JJ. For the Petitioner : Mr. Mangesh Patil For 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 44 .....

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, 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 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 .....

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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 Application No.245 of 19 .....

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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 .....

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. 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 13 .....

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er 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 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 : .....

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lude 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 pr .....

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al 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 diametr .....

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ing, 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 .....

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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 it appropriate to refer the questio .....

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edings' 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 Sectio .....

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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 .....

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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 C .....

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rs have been accordingly conferred on it. 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 woundup 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 ju .....

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e 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. 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 .....

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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 .....

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g, 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. Explanation.-For the purposes of this section, debt or other liability means a legally enforceable debt or other liability. 17. .....

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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 .....

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ourt 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 w .....

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he 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 .....

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preme 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 decline to transfer the assessment proceedings in a given case but the power on the plain language of Section 446 o .....

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eing 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 please .....

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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 cate .....

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ing withdrawn and disposed of by the winding-up court. 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 .....

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n (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 with Section 171 of Indian Co .....

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. 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) o .....

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er 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 .....

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e 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 ques .....

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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 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 givin .....

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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 o .....

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ifteen 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 windingup 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 .....

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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 windingup is concerned, n .....

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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 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 ap .....

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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 account .....

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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 .....

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ny 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 .....

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