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TMI Blog2012 (2) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... Negotiable Instruments Act, 1881 (hereinafter 'N.I. Act'). By way of a detailed judgment, the High Court after dismissing the writ petitions held that sanction of a scheme under Section 391 of the Companies Act, 1956 (hereinafter 'Companies Act') does not amount to compounding of an offence under Section 138 read with Section 141 of the N.I. Act. The High Court also held that sanction of a scheme under Section 391 of the Companies Act will not have the effect of termination or dismissal of complaint proceedings under N.I. Act. However, the learned Judge made it clear that the judgment of the High Court will not prevent the petitioners from filing separate application invoking the provisions of Section 482 Criminal Procedure Code, if they are so advised. Assailing the said judgment the learned counsel submitted that an unsecured creditor who does not oppose the scheme of compromise or arrangement under Section 391 of the Companies Act must be taken to have supported the scheme in its entirety once such a scheme is sanctioned by the High Court, even a dissenting creditor cannot file a criminal complaint under Section 138 of the N.I. Act for enforcement of a pre-compromise debt. Nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the background of the aforesaid facts the contentions raised by the appellant company is that the scheme envisaged a compromise between the company and the secured creditors on the one hand and its unsecured creditors on the other hand. Such scheme was framed pursuant to the order of the Company Court dated 5th May, 2005 which directed meeting of the different classes of creditors for consideration of the scheme. Thereafter, meeting was convened of unsecured creditors and the scheme was approved on 1st June, 2005 by the requisite majority of the shareholders and unsecured creditors. Then the scheme was taken up for sanction by the Company Court. The Court considered the objections of some of the unsecured creditors and workmen but ultimately by its judgment dated 17th November, 2005 approved the scheme with a few minor modifications. It was also urged that some of the secured and unsecured creditors have taken advantage of the scheme and did not challenge the scheme. However, the scheme was challenged by the appellant(s) in respect of certain observations made therein by the learned Company Judge and the said appeal is pending before the Bombay High court. The learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that liberty also filed application for quashing of the proceedings. They have also filed SLPs before this Court. This Court should, therefore, dismiss the SLPs. 11. Considering the aforesaid submissions of the rival parties, this Court finds that the effect of approval of a scheme of compromise and arrangement under Section 391 of the Companies Act is that it binds the dissenting minority, the company as also the liquidator if the company is under winding up. Therefore, Section 391 of the Companies Act gives very wide discretion to the Court to approve any set of arrangement between the company and its shareholders. 12. Learned counsel for the appellant(s) placed reliance on the decision of this Court in M/s. J.K. (Bombay) Private Ltd. v. M/s. New Kaiser-I-Hind Spinning and Weaving Co., Ltd., and others reported in AIR 1970 SC 1041 in support of his contention that a scheme under Section 391 of the Companies Act is not a mere agreement but it has a statutory force. The learned counsel also urged, relying on the said judgment that the scheme is statutorily binding even on dissenting creditors and shareholders. The effect of the scheme is that so long as it was carried out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Lever and another v. State of Maharashtra and another reported in (2004) 9 SCC 438 it has been reiterated that a scheme under Section 391 of the Companies Act is binding on all shareholders including those who oppose it from being sanctioned. It has also been reiterated that the jurisdiction of the Company Court while sanctioning the scheme is supervisory. This Court in Hindustan Lever (supra) also accepted the principle laid down in sub-para 6 of para 29 in Mafatlal (supra) discussed above and held that a scheme under Section 391 of the Companies Act cannot be unfair or contrary to public policy, nor can it be unconscionable or against the law (see para 18 page 451 of the report) 17. In the case of Administrator of the Specified Undertaking of the Unit Trust of India and another v. Garware Polyester Ltd. reported in [2005] 10 SCC 682, this Court held that a scheme under Section 391 of the Companies Act is a commercial document and the principles laid down in the case of Mafatlal (supra) have been relied upon and in para 32 at page 697 of the report it has been reiterated that the scheme must be fair, just and reasonable and should not contravene public policy or any statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining industrial peace is not in issue in this case. Therefore, the decision in Shivanand (supra) does not have any relevance to the question with which we are concerned in the facts and circumstances of the case. 21. The learned counsel for the appellant(s) then advanced his argument on the provisions of N.I. Act and the nature of the offence under the N.I. Act. Reliance was placed on explanation to Section 138 of the N.I. Act in order to show that for the purposes of an offence under Section 138 of the N.I. Act, debt or other liability must mean a legally enforceable debt or liability. The learned counsel urged that even if a cheque is issued by the appellant company and which has been subsequently dishonoured, the same is a cheque relating to the debt of the company in respect of which there is a sanctioned scheme. Therefore, the same is not a legally enforceable debt in as much as after the sanctioning of the scheme the debt of the company can only be enforced against the company by a creditor in accordance with the said scheme and not otherwise. Reliance was also placed on Section 139 of the N.I. Act in order to contend that the statutory presumption must be construed in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No contrary view has been expressed by this Court in Mandvi (supra). 25. On the nature of the offence under N.I. Act learned counsel for the appellant(s) also placed reliance on a decision of this Court in the case of Damodar S. Prabhu v. Sayed Babalal H. reported in [2010] 5 SCC 663. In paragraph 4, this Court held that the dishonour of a cheque can be best described as a regulatory offence which has been created to serve the public interest in ensuring the reliability of these instruments and the Court has further held that the impact of the offence is confined to private parties involvement in commercial transactions. The Court also noted the situation that large number of cases involving dishonour of cheques are choking the criminal justice system and putting an unprecedented strain on the judicial functioning. In paragraph 7 of the judgment this Court noted the submissions of the learned Attorney General to the extent that the Court should frame certain guidelines so as to motivate the litigants from seeking compounding of the offence at an early stage of litigation and not at an unduly late stage. It was argued that if compounding is early the pendency of arrears can be tack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the N.I. Act. The Court held that Section 147 of the N.I. Act does not carry any guidance on how to proceed with the compounding of the offence under the N.I. Act and the Court felt that Section 320 of the Code cannot be strictly followed in the compounding of offence under Section 147 of the N.I. Act. Those guidelines were given to fill up a legislative vacuum. 28. Reliance was also placed by the learned counsel for the appellant(s) on the judgment of this Court in Central Bureau of Investigation, SPE, SIU (X), New Delh v. Duncans Agro Industries Ltd., Calcutta reported in [1996] 5 SCC 591. The decision of this Court in Duncans Agro (supra) was on the question of quashing the complaint under Section 482 of Criminal Procedure Code. In the facts of that case the learned Judges held that the Bank filed suits for recovery of the dues on account of grant of credit facility and the suits have been compromised on receiving the payments from the company concerned. The learned Court held if an offence of cheating is prima facie constituted, such offence is a compoundable offence and compromise decrees passed in the suits instituted by the Banks, for all intents and purposes amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the dispute and demand is settled by the authority and pending proceedings were withdrawn by an importer the balance demand against the importer shall be dropped and the importer shall be immune from any penal proceedings under any law. The Court also came to the conclusion that under the Customs Act, 1962 the appellant(s) have been discharged and the scheme granted them immunity from prosecution. On those facts the Court held that the immunity which has been granted under the provisions of Customs Act will also extend to such offences that may, prima facie, be made out on identical allegation, namely, evasion of customs duty and violation of any notification under the said Act. The Court also found, on a reading of the chargesheet and the FIR that there was no allegation against the appellant(s) of any intentional deception or of fraudulent or dishonest intention. On those facts the Court held that once a civil case has been compromised and the alleged offence has been compounded, the continuance of the criminal proceedings thereafter would be an abuse of the judicial process. 33. We fail to appreciate how the ratio in the case of Hira Lal (supra) rendered on completely differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any situation. 38. Learned counsel further submitted that the impugned judgment of the High Court correctly formulated the principle of compounding by holding that the act of compounding involves an element of mutuality and it has to be bilateral and not unilateral. 39. This Court finds lot of substance in the aforesaid submission. 40. Compounding of an offence is statutorily provided under Section 320 of the Code. If we look at the list of offences which are specified in the Table attached to Section 320 of the Code, it would be clear that there are basically two categories of offences under the provisions of Indian Penal Code which have been made compoundable. 41. There is a category of offence for the compounding of which leave of the Court is required and there is another category of offences where for compounding the leave of the Court is not required. But all cases of compounding can take place at the instance of persons mentioned in the Third Column of the Table. If the said Table is perused, it will be clear that compounding can only be possible at the instance of the person who is either a complainant or who has been injured or is aggrieved. 42. Sub-sections 4(a) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nte clause, William Blackstone in his Commentaries on the Laws of England (Oxford: The Claredon Press, 1st Edn. 1765-1769) observed that the devise was "...effectually demolished by the Bill of Rights at the revolution, and abdicated Westminster Hall when James II abdicated the Kingdom" (See Bennion on Statutory Interpretation, 5th Edition, Section 48). 50. Under the Scheme of modern legislation, non-obstante clause has a contextual and limited application. 51. The impact of a 'non-obstante clause' on the concerned act was considered by this Court in many cases and it was held that the same must be kept measured by the legislative policy and it has to be limited to the extent it is intended by the Parliament and not beyond that. [See ICICI Bank Ltd. v. Sidco Leathers Ltd. and Ors. - [2006] 10 SCC 452 para 37 at page 466] 52. In the instant case the non-obstante clause used in Section 147 of N.I. Act does not refer to any particular section of the Code of Criminal Procedure but refers to the entire Code. When non-obstante clause is used in the aforesaid fashion the extent of its impact has to be found out on the basis of consideration of the intent and purpose of insertion of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory provisions of Section 320 of the Code relating to the mode and manner of compounding of an offence. Section 147 will only override Section 320 (9) of the Code in so far as offence under Section 147 of N.I. Act is concerned. This is also the ratio in Damodar (supra), see para 12. Therefore, the submission of the learned counsel for the appellant to the contrary cannot be accepted. 59. In this connection, we may refer to the provisions of Section 4 of the Code. Section 4 of the Code, which is the governing statute in India for investigation, inquiry and trial of offences has two parts. 60. Section 4 sub-section (1) deals with offences under the Indian Penal Code. Section 4 sub-section (2) deals with offences under any other law which would obviously include offences under the N.I. Act. (See 2007 Crl. Law Journal 3958). 61. In the instant case no special procedure has been prescribed under the N.I. Act relating to compounding of an offence. In the absence of special procedure relating to compounding, the procedure relating to compounding under Section 320 shall automatically apply in view of clear mandate of sub-section (2) of Section 4 of the Code. 62. Sub-section (2) of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142 of the Constitution insofar as guidelines were framed in relation to compounding for reducing pendency of 138 cases. In doing so the Court held that attempts should be made for compounding the offence early. Therefore, the observations made in paragraph 24 of Damodar (supra), that the scheme contemplated under Section 320 of the Code cannot be followed 'in the strict sense' does not and cannot mean that the fundamental provisions of compounding under Section 320 of the Code stand obliterated by a side wind, as it were. 69. It is well settled that a judgment is always an authority for what it decides. It is equally well settled that a judgment cannot be read as a statute. It has to be read in the context of the facts discussed in it. Following the aforesaid well settled principles, we hold that the basic mode and manner of effecting the compounding of an offence under Section 320 of the Code cannot be said to be not attracted in case of compounding of an offence under N.I. Act in view of Section 147 of the same. 70. Compounding as codified in Section 320 of the Code has a historical background. In common law compounding was considered a misdemeanour. In Kenny's 'Outlines of Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various parameters and procedures and guidelines in the matter of compounding. If this Court upholds the contention of the appellant that as a result of incorporation of Section 147 in the N.I. Act, the entire gamut of procedure of Section 320 of the Code are made inapplicable to compounding of an offence under the N.I. Act, in that case the compounding of offence under N.I. Act will be left totally unguided or uncontrolled. Such an interpretation apart from being an absurd or unreasonable one will also be contrary to the provisions of Section 4(2) of the Code, which has been discussed above. There is no other statutory procedure for compounding of offence under N.I. Act. Therefore, Section 147 of the N.I. Act must be reasonably construed to mean that as a result of the said Section the offences under N.I. Act are made compoundable, but the main principle of such compounding, namely, the consent of the person aggrieved or the person injured or the complainant cannot be wished away nor can the same be substituted by virtue of Section 147 of N.I. Act. 74. For the reasons aforesaid, this Court is unable to accept the contentions of the learned counsel for the appellant(s) that as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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