1983 (3) TMI 230 - HC - Companies Law

Penalty where no specific penalty is provided elsewhere in the act, Temporary protection of employee Protection of employees during investigation by inspector or pendency of proceedings before appellate tribunal in certain cases

Summary

Issues:
1. Challenge to criminal offense disclosure against directors.
2. Applicability of section 635B of the Companies Act, 1956.
3. Legal transfer of services without a tripartite agreement.
4. Section 635B as a basis for a criminal offense.

Analysis:

The revisional application sought to quash the proceeding in Case No. C-3411 of 1967, challenging the complaint's validity against the accused company and its directors. The complaint alleged a violation of section 629A read with section 635B of the Companies Act, 1956. The accused company, along with other entities, formed Sahu Cement Service, appointing Sri D.N. Gupta, whose services were later terminated without prior intimation to the Company Law Board. The learned Chief Metropolitan Magistrate issued summons against the accused persons based on the complaint.

The petitioners contested the proceeding on several grounds. Firstly, they argued that the complaint failed to establish a criminal offense against the directors without specific averments of their involvement in the company's day-to-day operations. Secondly, they disputed the applicability of section 635B, asserting that Sri D.N. Gupta was not an employee of the accused company. Thirdly, they contended that the alleged transfer of services lacked a tripartite agreement, a legal requirement for such transfers. Lastly, they questioned whether section 635B could form the basis for a criminal offense under section 629A of the Companies Act, 1956.

The court analyzed the facts and legal precedents cited by both parties. It noted that the complaint lacked essential averments to implicate the directors in the company's operations, as directors are primarily concerned with policy matters, not day-to-day business activities. The court also emphasized the necessity of a tripartite agreement for the legal transfer of services, as highlighted in previous judicial decisions. Additionally, the court examined the interpretation of section 635B in relation to creating a criminal offense under section 629A.

Ultimately, the court found merit in the petitioners' arguments and decided to quash the proceedings in Case No. SG 3411 of 1967. It concluded that the complaint failed to establish the directors' involvement in the company's operations, the legal transfer of services, and the basis for a criminal offense under section 629A. The court's decision was based on the lack of essential elements in the complaint and the interpretation of relevant legal provisions.