2011 (7) TMI 1008 - HC - Companies Law

Winding up - monitory claim of the petitioning creditor is satisfied - whereunder the company court directed the Registrar, original side to lodge a complaint before the competent authority against the appellant-company for being tried before the Magistrate for making a false defence against the claim of the petitioning creditor and also the imposition of onerous cost by the company court Held that - Merely that the defence is not found favourable by the company court does not render such defence in falsity so that it can be tried under the criminal law. defence which has been taken by the appellant-company is of such nature which makes it expedient in the interest of justice to be referred to for being tried under the criminal law. Portion of an order by which the company court directed the Registrar, original side to lodge a complaint for taking cognizance of an offence alleged to have been committed by the appellant-company set aside

Issues Involved:
1. Settlement of monetary claims between the parties.
2. Legitimacy of the company court's direction to lodge a complaint against the appellant-company for making a false defense.

Issue-wise Detailed Analysis:

1. Settlement of Monetary Claims:

The appellant-company and the petitioning creditor reached a settlement, withdrawing their claims and counterclaims. The monetary claim of the petitioning creditor was satisfied, and thus, the appellant-company was not aggrieved by the portion of the order directing the payment of money as claimed in the company petition.

2. Legitimacy of the Company Court's Direction to Lodge a Complaint:

The appellant-company challenged the portion of the judgment where the company court directed the Registrar, original side, to lodge a complaint against the appellant-company for making a false defense. The company court had found the defense set up by the appellant-company in reply to a statutory notice to be a "moonshine defense having smack of falsehood."

The appellant-company argued that merely finding the defense untenable did not confer power upon the court to invoke section 191 of the Indian Penal Code, 1860. The appellant-company contended that the court should have recorded a positive finding of fabrication or creation of a document to deceive the court.

Several judgments of the apex court were cited, emphasizing that before directing an inquiry for an offense committed, the court should form an opinion about the commission of such an offense on a preliminary inquiry and should be satisfied that it is expedient in the interest of justice to start prosecution.

The petitioning creditor also agreed that the court should not have directed the Registrar to lodge a complaint against the appellant-company for making a deceitful defense.

The company court's journey began with the defense taken by the appellant-company in reply to a statutory notice. The court stressed that the earlier statutory notice, which was the basis of the earlier company petition, was not replied to by the appellant-company. The court found the story of issuing a debit note improbable and noted that the objection was raised after the confirmation of the balance.

However, the defense was not found to be absolutely irrational or illegal, leading to conviction without any reasonable doubt. The defense might be untenable but did not necessarily appear false to the knowledge of the person adducing it.

The apex court in the case of Pritish held that before directing an inquiry, the court should be satisfied that it is expedient in the interest of justice. Similarly, in B.K. Gupta, the apex court emphasized the need for the court to apply its mind regarding the expediency for filing a complaint. The court in K.T.M.S. Mohd. held that mere contradiction in statements does not justify prosecution.

The five-judge bench in Iqbal Singh Marwah reiterated that the court is not bound to make a complaint unless it is expedient in the interest of justice. The court should weigh the impact of the offense on the administration of justice before filing a complaint.

The Division Bench in Jadu Nandan Singh and Keramat Ali cautioned against setting criminal law in motion without a reasonable probability of conviction and emphasized the need for great care and caution.

The court concluded that the defense taken by the appellant-company did not make it expedient in the interest of justice to be referred for trial under criminal law. Therefore, the portion of the order directing the Registrar to lodge a complaint was set aside.

Conclusion:

The court set aside the portion of the order directing the Registrar, original side, to lodge a complaint against the appellant-company. The parties had settled their monetary claims, and no costs were imposed.

← Previous Next →