TMI Blog1998 (9) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... tes of Order and consequently the Official Liquidator stood appointed as Provisional Liquidator of the Company's assets. By the present application permission is sought under section 446(2) of the Companies Act to prosecute the complaints against the Company only, as no permission is required to prosecute or continue the prosecution of the Officers involved. Company Application (Lodging) No. 621 of 1998, has been taken out in Company Petition No. 220 of 1997 under section 442(b) of the Companies Act. The applicant is the Company. Two prayers have been made therein of which one is to stay proceedings against the Company filed under section 138 of the Negotiable Instruments Act and pending in the Court of Metropolitan Magistrate's 38th Court at Ballard Pier, Mumbai. 2. The applications filed in both the company petitions which are against different companies are being taken up together in view of the question of law involved. Similar questions in other petitions have also been heard and arguments in support or opposition to the points being decided here have been advanced by respective Counsel in those applications. The question of law is being decided in these two appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id section to hold a person responsible thereunder for any of the debts or liabilities of the Company. Sub-section (3) of section 542 provides for imprisonment. Thus again it is the section which confers powers on the Company Court to proceed with offences. Section 621 forms a part of Part IX. It is a restriction imposed on the Court to take cognizance of any offence against the Act except on a complaint by persons referred to therein. To take cognizance of any offence against the company alleged to have been committed by the Company or Officers can only be done on a complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorised by the Central Government in that behalf. In terms of sub-section 621(3) Liquidator is not an Officer of the Company for the purpose of section 621(1). In section 632 the expression again used is 'suit or other legal proceedings' where a limited company is plaintiff. Under section 633 an Officer of a Company in respect of certain types of misfeasance or breach of trust who apprehends, that proceedings may be initiated against him, may move the High Court to relieve him, as if it is the Court before which a proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it be the person who then was in charge of the Company or would it be the Liquidator who will stand accused in such criminal proceedings. If the contention is accepted the Liquidator in a case under the Essential Commodities Act will have to stand in the shoes of the accused as representing the Company unless it is held that it is the person who was in charge of the company at the time the offence is committed who is liable for prosecution. If a construction is given that it is the person who was in charge at the relevant time who will represent the Company, then where is the question of seeking permission to prosecute the Company. The limited question then at the highest will be paying the fine by way of sentence imposed by a Court. 6. The first question therefore that has to be considered is the object of the said section. The object in so far as section 446 is concerned has been considered in large number of Judgments. In Sudarsan Chits (I) Ltd v. G. Sukumaran Pillai, [1985]1SCR511 , the Apex Court was considering the true scope and ambit of the jurisdiction conferred on a Company Court under section 446(1)(d). The Apex Court noted the amendment brought by the Companies (Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt are taken by that Court. It is further observed that the section is intended to safeguard the assets of a company in winding up against wasteful or expensive litigation in regard to matters capable of being determined expeditiously and cheaply by the winding up Court itself. English Courts seem to have taken the same view. (In Re J. Burrows (Leads) Ltd.) 1982(2) All.E.R. 882. Slade, J., of the Chancery Division, was pleased to observe as under :-- A long line of authorities in my judgment establish that the predominant purpose of the provisions of the 1948 Act and its predecessors empowering the Court to stay actions against companies in liquidation is to ensure the ultimate distribution of the assets of an insolvent company pari passu among its creditors. The learned Judge relied on various Judgments of the English Courts for the said purpose. It may be pointed out that a question did arise in the case whether the expression proceedings include criminal proceedings. The matter arose out of a voluntary winding up proceedings where a Liquidator had been appointed. A claim was made by the Department of Health and Social Security which claim was admitted by the Liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions proceedings or other legal proceedings . Dealing with the said contention in S.V. Konduskar, (supra) as to whether the Company Court itself assess Court observed as under :-- 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 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 section 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. The Apex Court thereafter noted if an order is made by the Assessing Officer there are various provisions whereby the person assessed can have further remedy, whereas if the Company Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he leave of the Company Court. The Company Court itself has jurisdiction to deal with and dispose of the said proceeding. In Governor-General in Council v. Shiromani Sugar Mills Limited, in Liquidation 1946(16) Comp.Cas. 71, the issue before the Apex Court was whether the Income Tax Officer under section 46(2) of the Indian Income Tax Act could effect recovery of tax dues as if it were an arrear of land revenue. The Official Liquidator contended that the Income Tax Official should lodge a claim in the winding up proceedings and that at any rate the Income Tax Officer was not entitled to commence any proceedings under section 46(2) without the leave of the winding up Court. The Apex Court held that the order under section 46(2) of the Indian Income Tax Act was a legal proceeding within section 171 of the Indian Companies Act, 1913, and accordingly, before forwarding the requisite certificate under section 46(2) to the Collector for the collection of the arrears of Income Tax as arrears of land revenue, the Income Tax Officer ought to have applied under section 171 of the Indian Companies Act for leave of the winding up Court. In Joshi Trading Co. (P) Ltd.v. Essa Ismail Scat 1980 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had no legal right or title and the landlord could not be deprived of the order on the ground that permission under section 446 was required. In Jaswantrai Manilal Akhaney v. State of Bombay 1956CriLJ1116 , the Apex Court was considering the issue of sanction by the Court for criminal prosecution of the Managing Directors. What was under consideration was section 179 of the old Act which is similar to section 457 of the new Act i.e. the power of the Liquidator to file complaints. In the course of the discussion the Court in para 16 observed as under :-- This section does not purport to impose any limitations on the powers of a Criminal Court to entertain a criminal prosecution launched in the ordinary course under the provisions of the Code of Criminal Procedure. Where a prosecution has to be launched in the name of, or on behalf of, the company, it naturally becomes the concern of the Judge to see whether or not it was worthwhile to incur expenses on behalf of the company and therefore, the section requires the sanction of the Judge before the liquidator can undertake the prosecution or defence in the name of and on behalf of the company. This would be so under section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be made clear that the issue involved in these applications were not directly in issue in the said petition. What was directly in issue in that case was in the event a petition for winding up was filed or liquidator appointed in the case a cheque issued by the Company was dishonoured, was the Company liable for prosecution. Nonetheless the observations there have a material bearing on the issue. The question arose thus. On a petition for winding up being presented, whether transaction in respect of the property or assets moveable or immovable become void under section 536 of the Companies Act. It was contended that after such petition was filed, complaints for dishonour of cheques would not be maintainable as no moneys could be paid as such transaction would be void. The Court held that an offence is complete after the ingredients of section 138 are satisfied and that mere filing of petition for winding up would not result in rendering void any disposal of movable or immovable property. In para 53 of the Judgment the Division Bench noted that a subsequent order appointing a Provisional Liquidator or winding up of the company can have no bearing on the proceedings under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was the need for the Legislature to confer power on the High Court to try some criminal proceedings by conferring such power, if there was already power in the Company Court to withdraw the proceedings and try them itself. The other Judgment relied upon is of a Single Judge of the Gujarat High Court in the case of Harish C. Rajkapoor v. Jaferbhai Mohmedbhai Chhatpar 1989(65) Comp.Cas. 163. There again the Court was considering the issue under section 391. The Court considered the Judgment of this Court in the case of Uma Investments Pvt. Ltd. (supra) and dissented from the same. Reliance was placed on the Judgment of the Single Judge of the Delhi High Court in the case of Official Liquidator, R.C. Abrol and Co. Pvt. Ltd. 1977(47) Comp.Cas. 537 (supra). I am unable to accept the view taken by the learned Judge of the Gujarat High Court in construing the word proceedings under section 391(6). The view taken by this Court in Uma Investments 1977(47) Comp.Cas. 242 (supra) and the view of the Division Bench in Orkay Industries Ltd. 1998(2) M.L.J. 910 are in conformity with the object of the Act. Under section 621 of the Companies Act, complaints for offences under the Act can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim as a Creditor. If this is accepted, the easiest way out for a Company which is deemed to have committed an offence will be to sponsor a petition and then apply for stay of proceedings under section 442. The Company Court itself under section 446 cannot try the complaint. Realisation of such fine under the provisions of the Land Revenue Code would be other legal proceedings. Sale and attachment of the property of the Company is subject to section 537. Thus it is these other legal proceedings which the Company Court could look into as it would have a bearing on the assets of the company. Therefore construing the judgment of the Apex Court in the case of S. V. Kondaskar, (supra) it is impossible to contend that the Company Court in winding up would have jurisdiction to stay the criminal prosecution or that permission of the Company Court is required to prosecute the company for offences committed before a Provisional Liquidator is appointed or an order of winding up is made. In a rare case if the Liquidator himself is to be held liable for acts of the company there are always powers in him to seek permission of the Company Court to prosecute or defend such prosecution. The exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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