2006 (11) TMI 342 - HC - Companies Law

Issues Involved:
1. Maintainability of the application under sections 542 and 543 of the Companies Act, 1956, by the 'administrator'.
2. Jurisdiction of the company judge under section 542 of the Companies Act, 1956, to punish the guilty person for the criminal offense mentioned thereunder.

Issue-Wise Detailed Analysis:

1. Maintainability of the application under sections 542 and 543 of the Companies Act, 1956, by the 'administrator':

The primary issue was whether the 'administrator' appointed by the court could move an application under sections 542 and 543 of the Companies Act, 1956. The company in liquidation, RPS Benefit Fund Ltd., had collected Rs. 43 crores from 16,000 depositors and subsequently collapsed. The learned company judge had appointed administrators to investigate the affairs of the company. The administrator filed an application under sections 539 to 543 of the Companies Act, 1956, seeking a declaration that the respondents were liable and sought their prosecution.

The appellants contended that the application was not maintainable as the administrator did not have the jurisdiction to file it. The learned company judge observed that the administrator was appointed to investigate the affairs of the company and held that the application was maintainable. However, the court noted that section 542 specifies that only the Official Liquidator, liquidator, any creditor, or contributory of the company could file such an application. The court emphasized that merely because the administrator had taken certain actions in the past without opposition, it did not grant them the jurisdiction to file the application. The court concluded that the application under sections 542 and 543 by the administrator was not maintainable.

2. Jurisdiction of the company judge under section 542 of the Companies Act, 1956, to punish the guilty person for the criminal offense mentioned thereunder:

The second issue was whether the company judge had the jurisdiction to punish the guilty person for the criminal offense under section 542. Section 542 deals with the liability for fraudulent conduct of business, allowing the Tribunal to make declarations and determine liability if fraudulent conduct is found during the winding up of a company. However, such declarations and orders can only be made on the application of the Official Liquidator, liquidator, any creditor, or contributory of the company.

Section 543 allows the Tribunal to assess damages against delinquent directors, managers, liquidators, or officers of the company for misapplication, retention, misfeasance, or breach of trust. The court clarified that while section 542 makes a person criminally liable, section 543 is civil in nature. For criminal enforcement under section 542, the Official Liquidator or liquidator must seek permission to prosecute the guilty person, and the company judge/Tribunal can only give a declaration and permit the Official Liquidator or liquidator to move the court of criminal jurisdiction. The court concluded that the company judge/Tribunal could not impose punishment under sub-section (3) of section 542, as it could only give permission to prosecute.

Conclusion:

The court held that the application under sections 542 and 543 by the administrator was not maintainable, and the learned company judge did not have the jurisdiction to impose a fine in lieu of imprisonment under sub-section (3) of section 542. Consequently, the impugned order dated 22-3-2006, passed by the learned company judge, was set aside. The court noted that this order would not prevent the Official Liquidator, liquidator, any creditor, or contributory of the company from filing an application under sections 542 and 543 based on the observations made by the learned company judge.

The original side appeals were allowed, and the connected miscellaneous petitions were closed with no order as to costs.

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