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2019 (5) TMI 484 - HC - Companies LawNon-distribution of dividend to the complainant - Whether the process and summons issued under section 127 of the Companies Act without taking into account the provision of section 127(c) of the Companies Act can be granted? HELD THAT - There is a dispute regarding the right to receive dividend, as the matter was referred to National Company Appellate Law Tribunal and if the dispute regarding right to receive dividend exists, then no offence under the section shall be deemed to have been committed. Thus, non-payment of dividend to the shareholder is an offence, which invites penal action. However, non-payment of dividend to the shareholder will not be called an offence if the payment is not made because the dispute between the parties exists. The dispute regarding entitlement to receive the dividend exists. The act of non-payment of dividend by the directors of the company can be justified because according to them, a particular shareholder is not entitled to receive dividend. Mere having opinion or holding view that a shareholder is not entitled to receive dividend is not sufficient but there should be existence of a dispute as understood by law. Mere denial of the entitlement is not enough to get the benefit of Section 127(c) but the real dispute between the parties should exists. Similarly, mere denial of existence of dispute by the shareholder after pursuing litigation against the company and its directors cannot render dispute non-existing. Indeed this can be ascertained on the basis of the facts and circumstances of each case - In the present case, admittedly the dispute exists between the shareholder and the directors and it was pending in Company Law Tribunal and National Company Appellate Law Tribunal. It was also pending before the Arbitrator. In absence of such litigations before the Company Law Tribunal and arbitrator, it would have been difficult to state that there is a dispute between the petitioner and the respondent, then the fact of dispute should have been the subject matter of trial and evidence and it would not have been considered at the stage of quashing of process. The record placed before the learned trial Judge itself discloses the proviso of Section 127(c) of the Companies Act and if material placed before the Court clearly fulfills the requirement of the proviso or an exception, then it cannot be ignored and the learned trial Judge after taking into account the material placed before and the proviso, should have formed opinion that offence under section 127 is not constituted. Application disposed off.
Issues Involved:
1. Whether the Magistrate should consider the proviso and deeming provision in Section 127(c) of the Companies Act while issuing process. 2. Whether a dispute exists in the present matter and if it can affect the issuance of process under Section 127(c) of the Companies Act. Detailed Analysis: Issue 1: Consideration of Proviso and Deeming Provision by Magistrate The judgment addresses the legal question of whether the Magistrate, while issuing process or notice for an offence, should take into account the proviso and deeming provision in Section 127(c) of the Companies Act, or if it is barred under Section 105 of the Evidence Act. The court examined various precedents to clarify the role of provisos and deeming provisions in statutory interpretation. It was emphasized that a proviso is not merely an exception but can control the main section to avoid ambiguity. The court cited multiple Supreme Court cases, including Indian Oil Corporation Ltd. vs. Chief Inspector of Factories & Ors. and ALI M.K. & Ors. vs. State of Kerala & Ors., to illustrate that the proviso and deeming provisions are integral to the section they qualify. The court concluded that the proviso in Section 127(c) should be considered by the Magistrate while issuing process. The proviso, which includes the deeming provision, forms a part of the section and cannot be overlooked. Issue 2: Existence of Dispute and its Impact The court analyzed whether a dispute regarding the right to receive dividends exists and if such a dispute can affect the issuance of process under Section 127(c) of the Companies Act. The court noted that the dispute between the parties was admitted and pending before various legal forums, including the National Company Law Tribunal (NCLT) and arbitration proceedings. The court referred to the Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. case, which defined a "dispute" under the Insolvency and Bankruptcy Code, indicating that a real dispute as to payment must exist and not be spurious or illusory. The court found that the existence of a dispute was evident from the records and that the dispute was substantial and pending before competent authorities. Therefore, the non-payment of dividends due to this dispute falls within the proviso of Section 127(c), which states that no offence is committed if there is a dispute regarding the right to receive the dividend. Conclusion: The court held that the Magistrate should have considered the proviso and deeming provision in Section 127(c) while issuing the process. The existence of a dispute between the parties was clear and substantial, making the issuance of process under Section 127 inappropriate. Consequently, the orders of issuance of process by the Sessions Court were quashed and set aside. Orders: 1. The orders of issuance of process passed by the Sessions Court are quashed and set aside. 2. The criminal applications are allowed to the extent of quashing the process. 3. The request for a stay of the order by the respondents was denied.
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