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TMI Blog1998 (9) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (3) of the minutes of the order was to stand appointed as provisional liquidator. There was a failure by the company to pay in terms of the minutes of the order and consequently the Official Liquidator stood appointed as provisional liquidator of the company's assets. By the present application permission is sought under section 446(2) of the Companies Act, 1956, ('the Act') to prosecute the complaints against the company only, as no permission is required to prosecute or continue the prosecution of the officers involved. 2. Company Application (Lodging) No. 621 of 1998 has been taken out in Company Petition No. 220 of 1997 under section 442(b) of the Act. The applicant is the company. Two prayers have been made therein of which one is to stay proceedings against the company filed under section 138 of the Negotiable Instruments Act and pending in the court of the Metropolitan Magistrate's 38th Court at Ballard Pier, Mumbai. 3. The applications filed in both the company petitions which are against different companies are being taken up together in view of the question of law involved. Similar questions in other petitions have also been heard and arguments in support or oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is another section whereby power is given to the court on the events taking place as set out in the said section to hold a person responsible thereunder for any of the debts or liabilities of the company. Sub-section (3) of section 542 provides for imprisonment. Thus, again it is the section which confers powers on the company court to proceed with offences. Section 621 forms a part of Part IX. It is a restriction imposed on the court to take cognizance of any offence against the Act except on a complaint by persons referred to therein. To take cognizance of any offence against the company alleged to have been committed by the company or officers can only be done on a complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorised by the Central Government in that behalf. In terms of sub-section (3) of section 621, the liquidator is not an officer of the company for the purpose of section 621(1). In section 632, the expression again used is 'suit or other legal proceedings' where a limited company is the plaintiff. Under section 633 an officer of a company in respect of certain types of misfeasance or breach of trust who apprehends that proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Commodities Act and/ or the Food Adulteration Act, where the company can be convicted. In such case will it be the person who then was in charge of the company or would it be the liquidator who will stand accused in such criminal proceedings? If the contention is accepted the liquidator in a case under the Essential Commodities Act will have to stand in the shoes of the accused as representing the company, unless it is held that it is the person who was in charge of the company at the time the offence was committed, who is liable for prosecution. If a construction is given that it is the person who was in charge at the relevant time who will represent the company, then where is the question of seeking permission to prosecute the company. The limited question then at the highest will be paying the fine by way of sentence imposed by a court. 10. The first question, therefore, that has to be considered is the object of the said section. The object in so far as section 446 is concerned has been considered in a large number of judgments. In Sudarsan Chits (India) Ltd. v. Sukumaran Pillai [1985] 58 Comp. Cas. 633 , the Apex Court was considering the true scope and ambit of the jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the winding up court to avoid, wherever possible, expensive litigation and to see that all matters in dispute which are capable of being expeditiously disposed of by the winding up court are taken by that court. It is further observed that the section is intended to safeguard the assets of a company in winding up against wasteful or expensive litigation in regard to matters capable of being determined expeditiously and cheaply by the winding up court itself. 14. The English courts seem to have taken the same view. In Burrows (J.) (Leeds) Ltd.'s case (supra), Slade, J. of the Chancery Division, was pleased to observe as under : "A long line of authorities in my judgment establish that the predominant purpose of the provisions of the 1948 Act and its predecessors empowering the court to stay actions against companies in liquidation is to ensure the ultimate distribution of the assets of an insolvent company pari passu among its creditors." (p. 886) 15. The learned Judge relied on various judgments of the English courts for the said purpose. It may be pointed out that a question did arise in the case whether the expression 'proceedings' include criminal proceedings. The matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such the proceedings must be such which can be dealt with by the company court. Thus, the expression 'other legal proceedings' and 'proceedings' must have the same meaning. 17. That brings us to the question as to the scope and ambit of sections 442 and 446 including the expression 'proceedings' or 'other legal proceedings'. Dealing with the said contention in S.V. Kondaskar, Official Liquidator & Liquidator of the Colaba Land & Mills Co. Ltd.'s case (supra), as to whether the company court could itself assess, the court observed as under : "...It would lead to anomalous consequences if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income-tax. The argument on behalf of the appellant by Shri Desai is that the winding up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of section 446 of the Act must be held to vest in that court to be exercised only if considered expedient. We are not impressed by this argument. The language of section 446 must be so construed as to eliminate such startling consequences as investing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement with the creditors and members and any question of probability or any other question whatsoever whether of law or fact which may relate to or arise in the course of the winding up of the company. Therefore, under section 446 once an order for winding up is made and a provisional liquidator is appointed any suit or other legal proceedings cannot be proceeded with, without the leave of the company court. The company court itself has jurisdiction to deal with and dispose of the said proceeding. In Governor-General In Council v.Shiromani Sugar Mills Ltd. (In Liquidation) [1946] 16 Comp. Cas. 71 (SC), the issue before the Apex Court was whether the Income-tax Officer under section 46(2) of the Indian Income-tax Act could effect recovery of tax dues as if it were an arrear of land revenue. The Official Liquidator contended that the ITO should lodge a claim in the winding up proceedings and that at any rate the ITO was not entitled to commence any proceedings under section 46(2) without the leave of the winding up court. The Apex Court held that the order under section 46(2) of the Indian Income-tax Act was 'legal proceedings' within section 171 of the Indian Companies Act, 1913 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emical Vessels Fabricators Pvt. Ltd. [1989] 65 Comp. Cas. 506. The learned single judge there held that the expression 'no suit or legal proceedings' meant proceedings in which the assets or effects of the company were involved. In a case where the premises were let out to the company and the order for eviction has been passed before the winding up order, the company had no legal right or title and the landlord could not be deprived of the order on the ground that permission under section 446 was required. In Jaswantrai Manila Akhaney v. State of Bombay [1956] 26 Comp. Cas. 340, the Apex Court was considering the issue of sanction by the court for criminal prosecution of the managing director. What was under consideration was section 179 of the old Act which is similar to section 457 of the new Act, i.e., the power of the liquidator to file complaints. In the course of the discussion the court in para 16 observed as under : "This section does not purport to impose any limitations on the powers of a criminal court to entertain a criminal prosecution launched in the ordinary course under the provisions of the Code of Criminal Procedure. Where a prosecution has to be launched in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in that view, it was not possible to take the view that section 391 is meant for freezing criminal proceedings which may be instituted either by a creditor or a member of the company or by the State either against the company or its officers. My attention has also been invited to a judgment of the Division Bench of this court in Orkay Industries Ltd. v.State of Maharashtra [1998] 2 Mh LJ 910. It may be clear that the issue involved in these applications was not directly in issue in the said petition. What was directly in issue in that case was in the event a petition for winding up was filed or liquidator appointed in case a cheque issued by the company was dishonoured, was the company liable for prosecution. Nonetheless the observations there have a material bearing on the issue. The question arose thus. On a petition for winding up being presented, whether transactions in respect of the property or assets, movable or immovable, become void under section 536. It was contended that after such petition was filed, complaints for dishonour of cheques would not be maintainable as no moneys could be paid as such transaction would be void. The court held that an offence is complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt under section 446(3) could withdraw certain cases to itself including criminal cases. I am unable to agree with the view taken by the learned single judge of the Delhi High Court. Firstly, a criminal complaint cannot be lodged in the company court except those provided by the Act. Secondly, if the High Court could withdraw the complaint to itself and dispose of the complaint, then where was the need for the Legislature to confer power on the High Court to try some criminal proceedings by conferring such power, if there was already power in the company court to withdraw the proceedings and try them itself ? 23. The other judgment relied upon is of a single judge of the Gujarat High Court in the case of Harish C. Raskapoor v. Jaferbhai Mohmedbhai Chhatpar [1989] 65 Comp. Cas. 163 . There again the court was considering the issue under section 391. The court considered the judgment of this court in the case of Uma Investments (P.) Ltd. (supra) and dissented from the same. Reliance was placed on the judgment of the single judge of the Delhi High Court in the case of Official Liquidator, R.C. Abrol Co. P. Ltd. (supra). I am unable to accept the view taken by the learned judge of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an offence come to a halt, or can it be proceeded with only with the permission of the company court ? Merely because a fine may be imposed which will have to be paid from the assets of the company, can the company court intervene ? A complaint in such a case can only be at the instance of a payee or the holder in due course. Such a complainant of course is also entitled to file his claim as a creditor. If this is accepted, the easiest way out for a company which is deemed to have committed an offence will be to sponsor a petition and then apply for stay of proceedings under section 442. The company court itself under section 446 cannot try the complaint. Realisation of such fine under the provisions of the Land Revenue Code would be 'other legal proceedings'. Sale and attachment of the property of the company is subject to section 537. Thus, it is these other legal proceedings which the company court could look into as it would have a bearing on the assets of the company. Therefore, construing the judgment of the Apex Court in the case of S.V. Kondaskar Official Liquidator & Liquidator of the Colaba Land & Mills Co. Ltd.'s case (supra), it is impossible to contend that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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