1998 (6) TMI 587 - HC - Indian Laws

Summary

Issues Involved:
1. Whether the proceedings under Section 138 of the Negotiable Instruments Act can be quashed due to the pendency of winding-up petitions under Sections 536(2) and 441(2) of the Companies Act.
2. Whether the undertakings given by the petitioners to pay amounts can be quashed.
3. Whether the presentation of a winding-up petition creates a legal disability to make payments, thus preventing the commission of an offence under Section 138 of the Negotiable Instruments Act.
4. Whether there is a conflict between Section 138 of the Negotiable Instruments Act and Sections 536(2) and 441(2) of the Companies Act.

Detailed Analysis:

1. Quashing of Proceedings under Section 138 of the Negotiable Instruments Act:
The petitioners argued that payments made after the commencement of winding-up proceedings would be void under Section 536(2) of the Companies Act, and hence, they were justified in refusing to make such payments. The court examined whether the presentation of a winding-up petition creates a legal disability to make payments, thus preventing the commission of an offence under Section 138 of the Negotiable Instruments Act. The court held that Section 536(2) does not lay down any bar or prohibition preventing the company from making payments or even disposing of property. The court concluded that there would be a failure under Section 138 if the company or its directors do not make payment only on the ground that a petition for winding up has been presented. The court dismissed the petitions, stating that the offence under Section 138 is deemed committed on dishonour and non-payment within 15 days of receipt of notice of demand.

2. Quashing of Undertakings:
The court noted that the petitioners had given undertakings to the magistrates in some proceedings under Section 138 of the Negotiable Instruments Act, agreeing to pay the disputed amounts in installments. The court observed that the petitioners did not consider themselves restrained by law from making payments at the time of giving these undertakings. The court found that the non-payment within 15 days from receipt of notice was not due to any legal disability but due to other reasons such as inability to pay or lack of funds. Therefore, the court did not quash the undertakings given by the petitioners.

3. Legal Disability to Make Payments:
The court examined whether the presentation of a winding-up petition creates a legal disability to make payments. The court held that merely on the presentation of a petition for winding up, the affairs of a company do not come to an absolute standstill. The court stated that the company can carry on its business and make necessary payments for its commercial survival. The court concluded that there is no absolute prohibition or bar preventing the company or its directors from making payments or even making dispositions for the purpose of running the business of the company in the ordinary course. Therefore, the court held that there would be a failure to make payment under Section 138 if the company or its directors do not make payment merely on the ground that a petition for winding up has been presented.

4. Conflict Between Section 138 of the Negotiable Instruments Act and Sections 536(2) and 441(2) of the Companies Act:
The petitioners argued that there is a conflict between Section 138 of the Negotiable Instruments Act and Sections 536(2) and 441(2) of the Companies Act, and that the provisions of the Companies Act should prevail. The court rejected this argument, stating that there is no conflict between the two provisions. The court held that the two provisions operate in separate fields. The court noted that the offence under Section 138 is complete on the 15th day after receipt of the notice by virtue of non-payment, and a subsequent order of winding up has no effect on the offence which has already been committed. The court concluded that the commission of the offence is not dependent upon the winding up of the company but is dependent upon dishonour and non-payment of the amount within 15 days of the receipt of the notice.

Conclusion:
The court dismissed all the criminal writ petitions and vacated the interim stay granted in these petitions. The court directed the accused in various cases to appear before the respective magistrates on specified dates. The court held that the presentation of a winding-up petition does not create a legal disability to make payments, and there is no conflict between Section 138 of the Negotiable Instruments Act and Sections 536(2) and 441(2) of the Companies Act.