2000 (4) TMI 794 - HC - Companies Law

Summary

Issues Involved:
1. Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 can be quashed due to the pendency of proceedings under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Whether the allegations in the complaint satisfy the requirement of Section 141 of the Negotiable Instruments Act, 1881 concerning the liability of directors and other officers of the company.

Detailed Analysis:

Issue 1: Proceedings under Section 138 of the Negotiable Instruments Act, 1881 and Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985

The petitioners sought to quash the proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) on the grounds that their companies had been referred to the Board for Industrial and Financial Reconstruction (BIFR) under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), and an enquiry under Section 16 was pending. They argued that Section 22 of SICA barred such prosecutions.

The court noted that it was undisputed that references had been made to BIFR and enquiries under Section 16 were pending. Section 22(1) of SICA suspends legal proceedings, contracts, etc., against a sick industrial company during the pendency of an enquiry or scheme under SICA.

The court referred to authoritative pronouncements, including the Supreme Court's judgment in BSI Ltd. v. Gift Holdings (P.) Ltd., which clarified that the term "proceedings" in Section 22(1) does not encompass criminal prosecutions. The Supreme Court categorically held that the word "suit" in Section 22(1) does not include criminal prosecution, and is restricted to proceedings for the recovery of money or enforcement of security against the industrial company.

Further, the Supreme Court in Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. unequivocally held that Section 22(1) of SICA does not bar the filing or continuation of prosecution for offences under Section 138 of the NI Act. The court observed that Section 22 only creates an embargo against the disposal of assets of the company for recovery of its debts, not against criminal prosecutions.

Therefore, the court concluded that there is no scope for contending that the provisions under Section 22(1) of SICA operate as a bar to the prosecution for the offence under Section 138 of the NI Act. Consequently, the petitions to quash the proceedings on this ground were dismissed.

Issue 2: Compliance with Section 141 of the Negotiable Instruments Act, 1881

The petitioners contended that the complaints did not satisfy the requirement of Section 141 of the NI Act concerning the liability of directors and other officers of the company. Section 141 stipulates that every person who was in charge of and responsible for the conduct of the business of the company at the time the offence was committed shall be deemed guilty of the offence.

The court examined the complaints and noted that they contained assertions that the accused directors were responsible for the conduct of the business of the company. For instance, in one of the complaints, it was asserted that the directors were responsible for the conduct of the business of the firm, and hence, they were liable to be prosecuted.

The petitioners argued that the complaints did not specifically allege that the directors were in charge of and responsible for the conduct of the business at the time the offence was committed. However, the court held that the sum and substance of the allegations indicated that the directors were responsible for the conduct of the business. It was a question of fact to be determined during the trial whether the directors were indeed in charge of and responsible for the affairs of the company.

Considering the nature of the averments in the complaints, the court found that these were not cases where the proceedings could be quashed at this stage. Therefore, the petitions on this ground were also dismissed.

Conclusion:
The court dismissed the petitions, holding that there were no grounds for quashing the proceedings under Section 138 of the NI Act on the basis of the pendency of proceedings under Section 22 of SICA or on the basis of the allegations in the complaints concerning the liability of directors and other officers of the company.