2016 (5) TMI 520 - HC - Companies Law

Inclusion criminal complaints filed under Section 138 of the Negotiable Instruments Act 1881 to the expression suit or other proceedings in Section 446(1) and the expression suit or proceedings in Section 442 under Chapter II of Part VII of the Companies Act, 1956 - Held that - In consonance with the spirit purpose and object of the provisions of Section 446(1) of the Companies Act and Section 138 of the Negotiable Instruments Act we uphold the view taken by the Single Judge in the matter of Firth (India) (1998 (9) TMI 588 - HIGH COURT OF BOMBAY) and accordingly proceed to answer the Reference placed for our consideration as follows - The expression suit or other proceedings in Section 446(1) under chapter II of Part VII of Companies Act 1956 does not include criminal complaints filed under Section 138 of the Negotiable Instruments Act 1881.

Issues Involved:
1. Interpretation of the expressions "suit or other proceedings" in Section 446(1) and "suit or proceedings" in Section 442 of the Companies Act, 1956.
2. Applicability of these expressions to criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881.
3. Conflicting views in previous judgments of the High Court regarding the above issue.

Detailed Analysis:

1. Interpretation of the Expressions in Sections 446(1) and 442 of the Companies Act:
The primary issue revolves around whether the expressions "suit or other proceedings" in Section 446(1) and "suit or proceedings" in Section 442 of the Companies Act, 1956, encompass criminal complaints under Section 138 of the Negotiable Instruments Act, 1881. The High Court needed to resolve conflicting views from two prior judgments.

2. Applicability to Criminal Complaints Under Section 138 of the Negotiable Instruments Act:
The case facts reveal that the Petitioner filed a criminal case under Section 138 of the N.I. Act against a company and its director. The company was ordered to be wound up by the Gujarat High Court. The director sought a stay on the criminal proceedings, arguing that under Section 446(1) of the Companies Act, leave from the Gujarat High Court was required to proceed with the complaint. The Magistrate agreed, prompting the Petitioner to challenge this decision.

3. Conflicting Views in Previous Judgments:
The High Court examined two conflicting judgments:
- In Firth (India) Vs. Steel Co. Ltd., it was held that Section 446(1) of the Companies Act does not apply to proceedings under Section 138 of the N.I. Act.
- In Suresh K. Jasani Vs. Mrinal Dyeing and Manufacturing Company Limited, it was held that Section 446(1) does apply to such proceedings.

Analysis of Firth (India) Judgment:
The judgment in Firth (India) emphasized that the expression "suit or other legal proceedings" in Section 446(1) should be read ejusdem generis with "suit," implying it refers to civil proceedings affecting the company's assets during winding-up. Criminal complaints under Section 138 of the N.I. Act were deemed outside this scope because they impose personal criminal liability on the drawer of the cheque rather than affecting the company's assets directly.

Analysis of Suresh K. Jasani Judgment:
Conversely, the Suresh K. Jasani judgment interpreted "other legal proceedings" broadly to include criminal proceedings related to the company's civil or contractual liabilities. The rationale was that the criminal liability under Section 138 arises from the company's failure to meet its financial obligations, thus indirectly relating to its assets.

Resolution of Conflict:
The High Court, in resolving the conflict, examined the legislative intent and judicial precedents. It noted that Section 446 aims to protect the company's assets during winding-up from wasteful litigation. However, Section 138 of the N.I. Act aims to uphold the credibility of commercial transactions by imposing criminal liability for dishonored cheques, which is a personal liability of the drawer, not directly affecting the company's assets.

Supporting Judicial Precedents:
The Court referred to several precedents, including:
- S.V. Kondaskar Vs. V.M. Deshpande, where the Supreme Court held that "other legal proceedings" in Section 446 must be such that can be dealt with by the winding-up court.
- Joshi Trading Co. (P.) Ltd. Vs. Essa Ismail Sait, which held that proceedings not involving the company's assets do not require leave under Section 446.
- Allahabad Bank Vs. Canara Bank, where it was held that special statutes with non-obstante clauses can override general statutes like the Companies Act.

Conclusion:
The High Court concluded that the expression "suit or other proceedings" in Section 446(1) of the Companies Act does not include criminal complaints under Section 138 of the N.I. Act. This interpretation aligns with the legislative intent to protect the company's assets during winding-up without extending to personal criminal liabilities of the directors.

Final Judgment:
The Reference was answered, stating that criminal complaints under Section 138 of the N.I. Act are not covered by the expressions in Sections 446(1) and 442 of the Companies Act. The matter was directed to be placed before the learned Single Judge for further proceedings in the original writ petition.

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