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TMI Blog2004 (11) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing and final disposal of all the proceedings pending against the applicant-company, its directors, officers, civil/crimi-nal in any court or Tribunal in India or abroad and that the plaintiff/ appellant/complainant/claimants in such proceedings be injuncted from carrying on with the said proceedings pending the outcome of the aforesaid meetings and in the event of the meetings approving the scheme of the compromise/arrangement, pending the hearing and final disposal of the proceedings for sanction of the said scheme. 3. By an order dated August 27, 2004, an ad interim order in terms of prayer ( a ) of the Company Application No. 339 of 2004 was granted for a period of twelve weeks, i.e. , up to November 17, 2004. Prayer ( a ) reads as under: "( a ) That pending the outcome of the various meetings of the creditors of the applicant-company and if the said meetings approve the scheme of compromise/arrangement by a statutory majority, pending the hearing and final disposal of the proceedings for sanction of the said scheme, hearing and final disposal of all proceedings pending against the applicant, its directors, officers, civil/criminal in any court or Tribunal in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not entitled to an order under section 391(6). 8. Re: Submission I Mr. Madon submitted that the ambit of the term "proceeding" in section 391(6) of the Companies Act, 1956, does not include within its scope criminal proceedings against the company and its directors. The submission is well founded. 9. Mr. Madon relied upon the judgment of a learned single Judge of this court in State of Tamil Nadu v. Uma Investments (P.) Ltd. [1977] 47 Comp. Cas. 242 . In that case the applicant, the State of Tamil Nadu, took out a judge s summons for vacating the ex parte order obtained by the company under section 391(6) in an application filed by it under section 391 for sanction of a scheme of compromise with certain classes of creditors. The company had propounded the scheme in view of the financial difficulties faced by it for a variety of reasons which are not relevant for the present purpose. An ex parte order was passed under section 391(6) staying the commencement or continuance of all civil and criminal proceedings against the company and its officers pending the hearing and final disposal of the company application for sanctioning the scheme of compromise and arrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear from the very first sentence in the paragraph which contains the observation relied upon by Mr. Dwarkadas which reads: There is another angle from which the provisions of section 391 can be looked at in order to find out whether it is within the scope and object of the section to cover criminal proceedings . 13. It is true that in that case the scheme itself covered only civil liabilities and not criminal proceedings against the company and its officers. However, the stay was also sought in respect of criminal proceedings. The learned Judge, therefore, considered the ambit of the term "proceeding". The learned Judge further held as under: "...It is impossible 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 a company or by the State either against the company or its officers. If, the officers of the company are involved in offences like cheating, criminal breach of trust, misappropriation, forgery, using a forged document and falsification of accounts, in connection with the business of the company, can it be said that prosecutions can be stayed by the aid of sub-section (6) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing with the proposal for compromise or arrangement, set afoot for consideration of the creditors or members as provided in sub-section (2) of section 391. The company and its officers are open to prosecution. Criminal proceedings can be commenced or continued notwithstanding the fact that a scheme for compromise or arrangement has been initiated under section 391. In my judgment, the provisions of sub-section (6) of section 391 are not meant to freeze the commencement or continuation of criminal proceedings against the company and its officers." (p. 247) 15. There is no scope for distinguishing the judgment as contended by Mr. Dwarkadas, viz., that is does not apply to cases where the scheme provides for the termination of criminal proceedings against the company and its officers and directors and civil proceedings against persons other than the company itself. 16. In any event, the question whether proceedings under section 138 of the Negotiable Instruments Act are covered within the provisions of section 391(6) is also not res integra . In Criminal Application No. 2517 of 1998 [1999] 1 Learned Judgments 288, it was contended that complaints under section 138 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of Chapter V of the Companies Act. The only limitation is that in a case where a fine is imposed on the company, at the stage of the recovery of the fine, the company court can invoke its jurisdiction. The said matter had come up before me at the instance of applicants against whom complaints had been filed under section 138 of the Negotiable Instruments Act. I am, therefore, clearly of the opinion that the expression suit and/or other legal proceedings does not include criminal proceedings." The above judgments are binding on me. Mr. Dwarkadas submission is therefore rejected. 17. Re: Submission II Mr. Madon submitted that directors and guarantors of the company are not entitled to the benefit of the provisions of section 391(6) of the Companies Act. This submission too is well founded. As stated above there are various civil proceedings adopted by different creditors including the applicants before me against the company as well as its guarantors. The question is whether the guarantors are either themselves or on an application by the company on their behalf, entitled to invoke the provisions of section 391(6). 18. Mr. Madon relied upon the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of this case as contended by Mr. Dwarkadas. The reliance upon the judgment by Mr. Madon is well founded. 20. It is pertinent to note further that the second part emphasized by me in the above extract also supports Mr. Madon s contention that the scheme under section 391 does not release persons who are not parties to the scheme. The directors in the present case are not parties to the scheme which is only between the company and its creditors. 21. The language of section 391(6) itself does not include within its scope any other party or person. The scheme pronounced in the present case also is one between the company and its creditors. The officers, directors and guarantors of the company are not parties to the scheme. Indeed they could not be parties to the scheme. 22. Mr. Madon s submission is also supported by the judgment of a learned single Judge of the Madras High Court in B.K. Muthukrishna Sakthivel Vanavarayar v. Somasundaram Mills (P.) Ltd. [1976] 46 Comp. Cas. 274 where the learned Judge has held: "As under section 391 of the Companies Act, what was sanctioned by the High Court would be binding on all the creditors including the decree holder in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons. The point that was argued before me was neither argued before nor considered by the learned Judges. Mr. Dwarkadas also relied upon the judgment of a learned Single Judge of the Gujarat High Court in Harish C. Raskapoor v. Jaferbhai Mohmedbhai Chhatpar [1989] 65 Comp. Cas. 163 . It is true that this judgment supports Mr. Dwarkadas contentions to the effect that the court has power to stay criminal proceedings under section 391(6) of the Companies Act. However that judgment expressly dissented from the judgment of this court in the case of Uma Investment (P.) Ltd. ( supra ). The judgment of this court is binding on me and, therefore, the judgment of the Gujarat High Court is of no assistance to Mr. Dwarkadas. 24. In the circumstances Mr. Madon s submission is upheld. Re: Submission III A grievance was made on behalf of the applicants that the company applied for the order ex parte and without notice to them. The grievance is justified. Rule 71 of the Companies (Court) Rules, 1959, read as under: "71. Application for stay. An application under sub-section (6) of section 391 for stay of the commencement or continuation of any suit or proceeding against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AAIFR except with the consent of the Appellate Authority. However that would not justify the contention that the company petitions were not pending in this court within the meaning of that expression in rule 71. Because the petitions cannot be temporarily proceeded with it does not follow that they are not pending in this court. Mr. Dwarkadas relied upon the definition of the term "pending" in Black s Law Dictionary and Stroud s Judicial Dictionary, edition 3, volume 3, page 2141 which read as under: Black s Law Dictionary , 8th Edition : "Pending, adj. 1. Remaining undecided; awaiting decision 2. Parliamentary law. (Of a motion) under consideration: moved by a member and stated by the chair as a question for the meeting s consideration. See Consideration (2); On the Floor. A motion may be immediately pending, meaning that it is directly under consideration, being the last motion stated by the chair and next in line for a vote; or it may be pending subject to other motions of higher rank that have taken precedence over it. See immediately pending motion under section (2). Pending, prep. 1. Throughout the continuance of; during 2. While awaiting; until ." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded its address on September 26, 1952 and the learned Presidency Magistrate delivered his judgment on September 29, 1952, whereby he convicted accused Nos. 1 and 2 of the offences with which they were charged and acquitted the appellant and accused Nos. 4 and 5 of the offences. This court in the criminal appeal held that the provisions of the impugned Act was intra vires and the Presidency Magistrate had no jurisdiction to try the case after the commencement thereof. This court accordingly set aside the order of acquittal of the appellant and accused Nos. 4 and 5 and ordered a re-trial. For the present purpose, it is important to note, as held by the Supreme Court that the learned Presidency Magistrate was divested of jurisdiction to try the said case in view of the provisions of section 7 thereof. 33. In is in this context that the Supreme Court considered the meaning of the expression "pending" in section 10 of the impugned Act. The Supreme Court came to the conclusion that on the date of commencement of the Act, the said case was pending before the leaned Presidency Magistrate and that he was, therefore, divested of jurisdiction to try it. 34. It is important to note, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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