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TMI Blog2019 (5) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... n or holding view that a shareholder is not entitled to receive dividend is not sufficient but there should be existence of a dispute as understood by law. Mere denial of the entitlement is not enough to get the benefit of Section 127(c) but the real dispute between the parties should exists. Similarly, mere denial of existence of dispute by the shareholder after pursuing litigation against the company and its directors cannot render dispute non-existing. Indeed this can be ascertained on the basis of the facts and circumstances of each case - In the present case, admittedly the dispute exists between the shareholder and the directors and it was pending in Company Law Tribunal and National Company Appellate Law Tribunal. It was also pending before the Arbitrator. In absence of such litigations before the Company Law Tribunal and arbitrator, it would have been difficult to state that there is a dispute between the petitioner and the respondent, then the fact of dispute should have been the subject matter of trial and evidence and it would not have been considered at the stage of quashing of process. The record placed before the learned trial Judge itself discloses the proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out taking into account the provision of section 127(c) of the Companies Act can be granted is the issue. 2. Mr.Khandeparkar, the learned Counsel appearing for the applicants, submitted that it is a dispute relating to swapping of shares between the parties which is pending in nearly 4 to 5 proceedings. He submitted that the accused have filed the suit against the original complainant, in which a Deed of Family Settlement ( DFS for short) was entered into and signed on 11.9.2013 and in the said settlement, a scheme of merger of the companies was agreed. The company Man Infra Projects Limited ( MIPL for short) was to go to JCM group and RCM and independent directors will be the owners of MIIL. As per the settlements, the RCM group transferred the shares of MIPL to JCM group. However, he did not transfer the shares having value of ₹ 1,28,00,000/- in favour of RCM group. The complainant sold all the assets of MIIL and those shares are having a negative value in the market, although the swapping of shares was approved by the High Court by order dated 20.9.2013. He further submitted that in an Insolvency Petition filed by the complainant under the Insolvency and Bankrup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminal case because the judgment passed in civil case has no bearing over the criminal trial. So, the dispute contemplated under section 127(c) should be between the company and its shareholders and as per the finding of the NCLT, the dispute is between only two brothers and not between the shareholder and the company. He therefore, argued that the dispute cannot be used for quashing process under section 482 of Code of Criminal Procedure. The learned Counsel has further submitted in reply, that the complainant has claim of ₹ 100 crores against the applicants. He submitted that in law, the Court cannot take into account the proviso under section 127 (c) while issuing process. There is a legal bar under section 105 of the Evidence Act. The learned counsel relied on following decisions: (i) Judgment of Supreme Court in the case of Kishan Singh (D) through L.Rs. vs. Gurpal Singh Ors. 2010 AIR SCW 5527 on the point of relevancy. (ii) On the point of the bar of section 105 of the Evidence Act, he relied on the case of Sewakram Sobhani vs. R.K. Karanjiya Chief Editor Weekly Blitz Ors. 1981 Cri. L.J. 894 On the same point, he relied on the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be answered: (i) The Magistrate while issuing process or notice for commission of a particular offence, should take into account a proviso and deeming provision therein or it is barred under section 105 of the Evidence Act? (ii) Whether a dispute exists in the present matter and if exists, can it have bearing at the time of issuance of process in view of Section 127(c) of the Companies Act? 8. Let me deal with the law laid down by the Hon ble Supreme Court and various Courts on proviso and deeming provision in the Section. 9. The Hon ble Supreme Court has considered the proviso clause (ii) and (iii) of Section 2(n) of the Act in the case of Indian Oil Corporation Ltd. (supra). In paragraph 16 of the said judgment, the Supreme Court clarified that the proviso to the section is not in the nature of an exception but in order to avoid any ambiguity or to plug loopholes and to seal the escape routes, a deeming provision has been made in a mandatory form. 10. In the case of ALI M.K. (supra), the Supreme Court while dealing the Kerala State and Subordinate Services Rules, 1958 has considered proviso of Rule 8. Rule 8 was regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , considered the effect of possession and recovery of fine, i.e., Sections 357, 421, 431 of Cr.P.C. read with Section 64 and 70 of Indian Penal Code, i.e., imprisonment for default, however, it is not directly applicable wherein deeming provision in context with Sections 421 and 431 of Cr.P.C. regarding recovery of fine is discussed. 14. In the case of Harish Tandon (supra), the Supreme Court dealt with the provisions of U.P. Rent Act, Sub-sections (2) and (4) of Section 12 and Explanation in Section 25 of the Act. The Supreme Court has held that full effect is to be given to the statutory legal fiction and it has to be carried to its logical conclusion. In East End Dwellings Co.Ltd. (supra), the similar view is taken. 15. The learned Single Judge of Gujarat High Court in the case of Pravin Kumar Patel Ors. (supra) has held that for the purpose of deeming fiction coming into operation, the condition precedent is required to be fulfilled. 16. In the case of Piyush Kantilal Mehta (supra), the Supreme Court dealt with how to interpret a deeming provision. It said that though Sub-section (4) contains deeming provision, such deeming provision wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a whole. Sub-section (c) of Section 127 of the Companies Act is a part of the proviso which further provides deeming provision. While interpreting deeming provision in the proviso, the Court cannot overlook the internal aids, which are made available by the legislature, i.e. context and simple meaning of the word, therefore, the completeness of Section is a decisive point while interpreting Section 127 along with proviso and deeming provision. 21. The learned counsel Mr. Mor while arguing on bar of relying on the proviso, pointed out Section 105 of the Evidence Act and also relied on the ratio down in the following cases: In the case of Nishikanta Ghosh (supra), the matter came before the High Court where the appellant was convicted under the Calcutta Municipal Act as food was found adulterated and so the Single Judge dealt with Section 105 of the Evidence Act that states about the onus and proviso mentioned in Section 105. The Single Judge held that the onus with regard to special provisos is on the accused and it is for him to establish affirmatively the conditions thereunder in order that the special proviso must be attracted to the case and their benefits ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough L.Rs. vs. Gurpal Singh Ors. (supra), it was held that FIR cannot be quashed relying on the finding given in the civil Suit though in the said case, on account of delay, the High Court had quashed the criminal proceedings against the respondent and therefore, that order was not upset. 27. Sevakram (supra) was a case of defamation. The Supreme Court held that in the case of enquiry report, the High Court should not have quashed the proceedings itself by invoking section 482 of the Code of Criminal Procedure because it amounted to prejudging the issue. 28. The law is settled on the point of jurisdiction and powers of the High Court under section 482 of Criminal Procedure Code in the landmark judgment of State of Haryana Ors. vs. Bhajan Lal Ors. 1992 Supp 1 SCC 335 . The Supreme Court has made it clear that the powers should not be exercised generously but very sparingly. A reliability of the allegations made in the FIR or the complaint, is not to be examined so also the Judge should not while issuing process think about the conviction of the accused. The Supreme Court made 7 categories of the cases where inherent powers of quashing of process of the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at certain point in the case there is no question of shifting of burden because, the facts are explicitly clear in the complaint itself and they straight way fall within Section 58 of the Indian Evidence Act which states facts admitted need not be proved . Under such circumstances, bar under section 105 of the Evidence Act cannot restrict the Court to take into account the proviso and deeming section therein at the stage of issuance of process also. When no adjudication of the admitted fact is required, then it is to be taken into account at the initial stage itself. Otherwise, it is very artificial and pedantic to apply mechanically bar of Section 105 of the Evidence Act rendering Magistrate disable to look into the proviso when it very much forms a part of the complaint. 30. In the present case, the following facts are admitted: There is a dispute regarding the right to receive dividend, as the matter was referred to National Company Appellate Law Tribunal and if the dispute regarding right to receive dividend exists, then no offence under the section shall be deemed to have been committed. Thus, non-payment of dividend to the shareholder is an offence, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt does not need to be satisfied that defence is likely to succeed. Court does not at this stage examine merits of dispute except to extent indicated above. So long as dispute truly exists in fact and is not spurious hypothetical or illusory, adjudicating authority has to reject Application . 32. In the present case, admittedly the dispute exists between the shareholder and the directors and it was pending in Company Law Tribunal and National Company Appellate Law Tribunal. It was also pending before the Arbitrator. In absence of such litigations before the Company Law Tribunal and arbitrator, it would have been difficult to state that there is a dispute between the petitioner and the respondent, then the fact of dispute should have been the subject matter of trial and evidence and it would not have been considered at the stage of quashing of process. 33. Thus, on this background, let me advert to again the legality of the order passed by the Magistrate in the present case. 34. Perused the order dated 30th January, 2017 passed by the learned Judge of the issuance of process under section 127 of the Companies Act. So also perused the criminal complaint no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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