1998 (9) TMI 682 - HC - Companies Law

Summary

Issues Involved:
1. Whether the expressions "suit or other legal proceedings" in Section 446(1) and "suit or proceedings" in Section 442 of the Companies Act include criminal complaints filed under Section 138 of the Negotiable Instruments Act.
2. Whether the Company Court has jurisdiction to stay criminal proceedings against a company in winding up.
3. Whether the Company Court can grant permission to prosecute or stay proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act.

Issue-wise Detailed Analysis:

1. Interpretation of "suit or other legal proceedings" and "suit or proceedings":
The primary issue was whether the terms "suit or other legal proceedings" in Section 446(1) and "suit or proceedings" in Section 442 of the Companies Act encompass criminal complaints under Section 138 of the Negotiable Instruments Act. The court analyzed various sections of the Companies Act, including Sections 442, 446, 454, 457, 542, 621, 632, and 633. It noted that wherever Parliament intended to confer power on the Company Court to try criminal offences, it did so explicitly. The court emphasized that the terms "suit" and "legal proceedings" should be interpreted ejusdem generis, meaning they should be read in the context of civil proceedings related to the winding up of the company, not criminal proceedings.

2. Jurisdiction of the Company Court to Stay Criminal Proceedings:
The court examined the object of Sections 442 and 446, which is to protect the assets of a company in winding up from wasteful or expensive litigation. It referred to judgments like Sudarsan Chits (I) Ltd v. G. Sukumaran Pillai and Central Bank of India v. M/s. Elmot Engineering Company, which highlighted the purpose of these sections as ensuring the efficient and economical disposal of winding-up proceedings. The court concluded that the Company Court does not have the jurisdiction to stay criminal proceedings, as these do not fall within the ambit of "legal proceedings" that the Company Court can control.

3. Permission to Prosecute or Stay Proceedings under Section 138 of the Negotiable Instruments Act:
The court considered whether criminal complaints under Section 138 of the Negotiable Instruments Act could be stayed due to the winding-up process. It referred to the case of Orkay Industries Limited v. State of Maharashtra, where it was held that the filing of a winding-up petition does not affect the prosecution of offences under Section 138. The court reiterated that criminal law proceedings do not halt due to winding-up proceedings and that the Company Court cannot intervene merely because a fine might be imposed, which would be paid from the company's assets. The court emphasized that the expressions "legal proceedings" and "other legal proceedings" in Sections 442 and 446 should be read to mean civil proceedings with a bearing on the winding-up process, not criminal complaints.

Conclusion:
The court dismissed Company Application No. 446 of 1998 in Company Petition No. 457 of 1997, rejecting the request to stay criminal proceedings under Section 138 of the Negotiable Instruments Act. In Company Application (Lodging) No. 621 of 1998 in Company Petition No. 220 of 1997, the court granted an extension of two months to deposit the amount as ordered but rejected the prayer to stay the proceedings. The court concluded that criminal proceedings under Section 138 of the Negotiable Instruments Act are not covered by the expressions "suit or other legal proceedings" or "suit or proceedings" in Sections 442 and 446 of the Companies Act.