2020 (6) TMI 360 - HC - Companies Law

Whether Section 391 (6) of the Act empowered this Court to interdict the process set in motion by the complaint dated 15th February 2019 addressed by NSDC to the EOW? HELD THAT - The criminal proceedings cannot be stayed under Section 391 (6) of the Act. Civil proceedings alone can be so stayed. In the present case pursuant to the complaint dated 15th February 2019 addressed by NSDC to the EOW the record reveals that the EOW is merely looking into the matter for which purpose it had called the applicant to appear before it vide the notice dated 23 rd April 2019 supra. The said notice cannot even be termed a show cause notice as it merely states that the complaint of NSDC was being looked into and requested the applicants to appear before it in that regard. No action prejudicial to the applicant has been proposed in the said communication. The EOW has not called upon the applicant to show cause with respect to any of the allegations of NSDC or against any action proposed to be taken against the applicant pursuant thereto. It is not possible for this Court therefore to hold that at this stage any proceeding civil or criminal is pending against the applicant as could be stayed under Section 391 (6) of the Act. It is deemed appropriate to express any final opinion thereon as the complaint of NSDC is presently under consideration with the EOW which would doubtless take a view thereon. In the opinion of this Court no proceeding as could be stayed under Section 391 (6) of the Companies Act 1956 initiated by the NSDC can be said to be presently pending against the applicant - Petition dismissed.

Summary

Issues Involved:
1. Whether Section 391(6) of the Companies Act, 1956 can stay criminal proceedings.
2. Whether the complaint by NSDC to the EOW constitutes a criminal proceeding.
3. Whether any proceedings, civil or criminal, are pending against the applicant.

Issue-wise Detailed Analysis:

1. Whether Section 391(6) of the Companies Act, 1956 can stay criminal proceedings:
The applicant, iYogi Technical Services Pvt. Ltd., sought an interim stay of proceedings under Section 391(6) of the Companies Act, 1956, following a complaint by NSDC to the EOW. The applicant contended that the revival process justified the stay of proceedings. However, NSDC argued that the proceedings were criminal and could not be stayed under Section 391(6), citing the Division Bench judgment in Krishna Texport Industries Ltd v. D.C.M. Ltd, which held that Section 391(6) only applied to civil proceedings. The court reiterated that the object of Section 391(6) was to prevent vexatious litigation during the revival process and did not extend to criminal proceedings. The court concluded that criminal proceedings could not be stayed under Section 391(6) of the Act.

2. Whether the complaint by NSDC to the EOW constitutes a criminal proceeding:
The court examined whether the complaint by NSDC to the EOW and subsequent notices constituted criminal proceedings. The court noted that no FIR had been lodged against the applicant, and the EOW was merely looking into the matter. Referring to Lalita Kumari v. Govt. of UP, the court stated that criminal proceedings commence with the registration of an FIR. Since no FIR had been filed, the court held that criminal proceedings had not been initiated against the applicant.

3. Whether any proceedings, civil or criminal, are pending against the applicant:
The court analyzed whether any proceedings, civil or criminal, were pending against the applicant. The court referred to the definition of "proceeding" in Black’s Law Dictionary and various judgments, which indicated that a proceeding involves judicial or quasi-judicial action. The court found that the EOW's notice to the applicant was not a "show cause notice" and did not propose any prejudicial action. Thus, the court held that no proceedings, civil or criminal, were pending against the applicant that could be stayed under Section 391(6) of the Act.

Conclusion:
The court dismissed the application, concluding that no "proceeding," as could be stayed under Section 391(6) of the Companies Act, 1956, initiated by the NSDC, was presently pending against the applicant. The court emphasized that if the applicant was guilty of criminal misfeasance or misappropriation, it must face the consequences, but if the grievance was purely civil, the EOW should ensure that the revival efforts were not unjustifiably jeopardized.