1998 (9) TMI 589 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the company court to try criminal offences.
2. Appointment of a special officer and supersession of boards of directors.
3. Validity of the sale of shares and related allegations.
4. Procedural irregularities in the trial process.
5. Distinction between civil and criminal proceedings.

Detailed Analysis:

1. Jurisdiction of the Company Court to Try Criminal Offences:
The primary issue was whether the company court had the jurisdiction to try criminal offences under the Eleventh Schedule to the Companies Act read with section 406. The judgment clarified that the company court does not have the jurisdiction to try criminal offences. The court noted that the power to take cognizance and try an offence must be expressly conferred by legislation, and such power cannot be assumed or inferred. The court emphasized that the Companies Act, although a special statute, does not empower the company court to take cognizance of offences under the Eleventh Schedule. The court cited section 2(11) of the Companies Act, which defines the court with respect to any offence against the Act as the court of a magistrate of the First Class or a presidency magistrate.

2. Appointment of a Special Officer and Supersession of Boards of Directors:
The judgment addressed the appointment of Mr. Dipak Kumar Deb as a special officer in regard to five companies, superseding their boards of directors. The Division Bench, in its order dated June 19, 1997, set aside the appointment of the special officer and the supersession of the boards of directors of the subsidiaries of Akshay Nidhi Ltd. The court held that the learned trial judge's order appointing the special officer and superseding the boards was not justified.

3. Validity of the Sale of Shares and Related Allegations:
The case involved allegations regarding the sale of 1,250 shares of Raigarh Trading Ltd. held by Akshay Nidhi Ltd. The sale was contested on the grounds that it was conducted without proper notice to other directors and at a price significantly lower than the face value. The court noted that the principal allegation was that the sale was made with mala fide intent to deny the applicants from participating in the management of the company. The Division Bench ordered that the 1,250 shares of Raigarh Trading Company, which were permitted to be sold by a resolution, be handed over to the special officer within a month and that the resolution permitting the sale would not be given effect to.

4. Procedural Irregularities in the Trial Process:
The judgment highlighted several procedural irregularities in the trial process. The learned trial judge directed the commencement of a criminal trial without knowing who the accused were and without any formal complaint being filed. The court observed that a trial could not be directed to commence unless a cognizable offence had been brought to the notice of the court and the court had taken cognizance of the offence. The court also noted that the procedure adopted by the learned trial judge was not contemplated under the statute and was fraught with grave consequences.

5. Distinction Between Civil and Criminal Proceedings:
The court emphasized the distinction between civil and criminal proceedings, noting that it is against the basic principle of criminal jurisprudence to hold civil and criminal trials simultaneously. The court pointed out that in a civil proceeding, a party may examine himself as a witness, whereas in a criminal proceeding, he is not bound to do so. The court also noted that the jurisdiction to try criminal offences under the Companies Act is conferred on magistrates and not the company court. The court cited several precedents to support its conclusion that the company court does not have jurisdiction to try criminal offences.

Conclusion:
The judgment concluded that the impugned order of the learned trial judge was erroneous and could not be upheld. The appeal was allowed, and the order appointing the special officer and superseding the boards of directors was set aside. The court also quashed the assumption of criminal jurisdiction by the learned trial judge and directed that the appeal be decided on its own merits without reference to the order on the interim application.