1998 (12) TMI 555 - HC - Companies Law

Summary

Issues:
1. Invocation of inherent jurisdiction under section 482 of the Code of Criminal Procedure, 1973, and article 227 of the Constitution.
2. Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, regarding the bar on legal proceedings against an industrial company.

Issue 1:
The applicants invoked the inherent jurisdiction of the High Court under section 482 of the Code of Criminal Procedure and article 227 of the Constitution. They contended that being a relief undertaking and a sick industrial company, legal proceedings, specifically criminal prosecution under section 406 of the Indian Penal Code, should be barred. The Sales Tax Officer had demanded payment of sales tax dues, alleging a breach of trust by the company. The applicants argued that once proceedings are registered under section 22 of the Sick Industrial Companies Act, no further proceedings can be initiated against the company. They also cited a judgment of the Apex Court in Tata Davy Ltd. v. State of Orissa [1998] 93 Comp. Cas. 1, to support their position.

Issue 2:
The respondents argued that section 22 of the Sick Industrial Companies Act does not prevent criminal prosecution under section 406 of the Indian Penal Code. They contended that the bar on legal proceedings under section 22 does not extend to criminal proceedings. The Court analyzed section 22, which restricts proceedings like winding up or distress against a company without the consent of the Board or Appellate Authority. The Court examined the applicability of the Tata Davy Ltd. judgment, emphasizing that it pertained to recovery of sales tax and did not address criminal proceedings. The Court distinguished the case of Deputy CTO v. Corromandal Pharmaceuticals [1997] 89 Comp. Cas. 12, highlighting that section 22 does not cover criminal proceedings but civil recovery actions. It concluded that criminal proceedings under section 406 are not barred by section 22 as they involve prosecution for offences against the State, not recovery actions.

In the final ruling, the Court discharged the rule, stating that if criminal proceedings were initiated, the applicants should be given 48 hours notice before any arrest to enable them to seek appropriate legal remedies, including bail applications. No costs were awarded in the case.