9911796707
TMI Blog1998 (6) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... R.S. Deshpande, D.S. Mahispurkar, R.P. Behere, S.R. Borulkar, R.Y. Mirza, V.K. Jailramani, A.P.Ps., Pravin Samdani, Gaurav Joshi, S.N. Vimadalal, Advs., i/by M/s. Vimadalal Co., Mahesh Jethmalani, S.B. Jijina and Kocharekar Advs., i/by M/s. Mulla Mulla C.B. C., Naval A. Agarwal, Adv., i/b M/s. Apte Co., Vinay kumar Tiwari, Adv., i/b M/s. M.V. Kini Co., Miss Ruby Kerawala, Adv., i.b M/s. Little Co., J.J. Bhat, A.K. Desai, M.B. Sabnis and G.S. Rao, Advs., i/b M/s. Purnanand Co., Virendra Tulzapurkar and S.S. Parab, Advs., i/b M/s. Madehar Co., Sanjay Udeshi, Adv., i/b Sanjay Udeshi Co., Aspi Chinoy, Adv., i/b M/s. Mehta Girdharlal, J.D. Singh, Mrs. Vandana Jaisingh, Meher Gowala, Shrikant Bhat, Ishwar J. Mankani, V.V. Kanabar, Manoj Mohite, Vijay Tawde, S.H. Ahuja, Girish S. Godbole, Advs. For Official Liquidator : G.P. Yadav, C.P. Grade II, ORDER S.N. Variava, 1. By all these petitions the petitioners pray that the proceedings before the Metropolitan Magistrate Courts, under section 138 of the Negotiable Instruments Act, be quashed. In some of these petitions a prayer is also made that undertakings given by the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Very fairly Mr. Manohar points out to Court that Orkay Industries Ltd. has also paid to M/s. U.K. Industries Ltd. a sum of app. ₹ 1,04,00,000/- on 15th January 1997 and 19th May 1997. Some of the respondent creditors have pointed out to Court that Atash Industries (India) Ltd. have also paid to some of the creditors some amounts after the filing of the winding up petitions. We are informed that creditors in Company Petitions Nos. 580 of 1995, 581 of 1995, 582 of 1995. 583 of 1995 and 584 of 1995 have all been paid in full by Atash Industries (India) Ltd. and those petitions have been got dismissed on 25th September 1997 on the ground that the petitioners have been paid in full. Further in some of the proceedings under section 138 of the Negotiable Instruments Act, Atash Industries (India) Ltd. have given undertakings to the Court that they would pay the disputed amounts in certain installments. Some installments of some parties have been paid. 5. Mr. Manohar points out that against Orkay Industry Ltd., today there are pending 39 company petitions for winding up. He points out that the total liability in all these company petitions is in a sum of app. ₹ 36,67,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntation of a petition for winding up the Court has power to stay all pending suits and other proceedings. He submits that the rational behind this is that the Company Court should have full session of all matters relating to the concerned Company. He submits that in fact in England, upon the presentation of such a petition, the bank accounts of the company are completely frozen. He points out that there is no such provision in the Indian Companies Act. He however submits that section 536(2) invalidates every transaction which had taken place after the commencement of the winding up. He submits that thus that cheques themselves would be void. 9. Mr. Manohar submits that the rational behind section 536(2) read with section 441(2) is to prevent disposition of the property of the company in order to ensure that the interest of the unsecured creditors will not be prejudiced. He submits that it is the basic concept of the law, governing the liquidation of insolvent estates, (including insolvent companies) that the assets of the insolvent should be distributed rateably amongst all the unsecured creditors. He submits that the expression in the case of a winding up by Court in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen for a company and its Directors to validly take up a contention that they cannot be compelled to do an illegal act or an act which is bound to be held void. He submits that the company and its Directors would be entitled to not make payment because if such a payment is made it would be void He submits that a company and the Directors cannot be forced to make void payment. He submits that there is no provision in any law and the Court also cannot force a company or its Directors to make a void payment or do something which is not permitted by law. 12. In support of this last submission Mr. Manohar relied upon the authority in the case of Nawabkhan Abbaskhan v. State of Gujarat 1974CriLJ1054 . In this case an excitement order had been passed against the accused under section 56 of the Bombay Police Act. This order was passed without giving the accused any hearing. There was disobedience or order and prosecution was launched under section 142. The question was whether a conviction could be upheld. The Supreme Court held that the initial order of externment was rendered void ab initio as it did not comply with the provisions of the Act itself. The Supreme Court held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oid, the law is in effect laying down a restriction on the parties preventing them from entering into a transaction which is void. He submits that in such cases parties cannot be expected to and even courts cannot direct parties to perform acts or things which are not permitted by law or which are illegal. 14. In support of this Mr. Manohar relied upon the authority of the Supreme Court in the case of A.P.C.M.E. Society v. Government of Andhra Pradesh [1986]2SCR749 , In this case the Supreme Court has held that the courts cannot by their fiat direct the University to disobey the statute to which it owes its existence and the regulations made by the University itself. The Supreme Court has held that they cannot imagine anything more destructive of the rule of law than a direction by the Court to disobey the law. Mr. Manohar also relied upon the authority of the Supreme Court in the case of Johrilal Soni v. Smt. Bhanwari Bai [1978]1SCR231 . In this case the Supreme Court has held that there is a clear distinction between a void and the voidable transfer. The Supreme Court has held that this distinction is well-known to law. The Supreme Court has held that a void transfer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors are to be paid pan passu and that the appropriate date for ascertaining their legal position is the date of commencement of the winding up. The Division Bench has held that the object of this is to prevent injustice and scrambles and intrigues which would arise if the company was at liberty to prefer one creditor to another. The Division Bench has held that if any payment has been obtained either for the purpose of getting an adjournment in a winding up petition or through the Court process, the same must be returned by the creditor. The Division Bench has held that before a petition is presented, it is the ordinary course of business to pay all the debts and even to give security for the overdraft or loan. The Division Bench has held that after the petition is presented the situation is different and all debts have to be paid pan passu. The Division Bench has held that therefore it is no longer in the ordinary course of business to pay one creditor in full to the detriment of their fellow creditors. 17. Mr. Manohar also relied upon the judgment in the case of Official Liquidators v. Messrs Siemens (India) AIR1940All514 wherein it has been held that payment of debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions. 20. Mr. Manohar also relied upon the authorities in the cases of In re A.I. Levy (Holdings) Ltd., reported in (1963) 1 CD 19; Re Operator Control Cabs Ltd., reported in (1970) 3 All ER 567. These authorities merely reiterate what has been held above viz. that the object of the section was to project the interest of creditors and that an application for validation could be made even prior to an order for winding up being passed. 21. Based upon all the above authorities, Mr. Manohar submits that by reason of section 536(2) of the Companies Act, the company and its Directors could validly refuse to make payment after a petition for winding up was presented. He submits that such refusal would not amount to failure to make payment and therefore there would be no deemed offence under section 138 of the Negotiable Instruments Act. 22. He submitted that in any event the correct course for this Court would be to stay all the proceedings under section 138 of the Negotiable Instruments Act till such time as all the pending petitions for winding up were finally disposed off. In support of this Mr. Manohar relied upon the authority in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at under section 536(2) the transactions/dispositions would be void, unless sanctioned by Court, only if an order of winding up is passed or a Provisional Liquidator is appointed. In support of this proposition Mr. Chinoy relies on the case of A.C. Gael v. First National Bank Ltd., Delhi. In this case it is held that the winding up is a process which starts after the Court passes an order. It is held that till there is such an order there cannot be any winding up in fact. It is held that the first step is taken only after the passing of the order for winding up. It is held that section 441 of the Companies Act introduces a statutory fiction. It is held that in section 441 the Legislature has significantly used the words shall be deemed to commence and not shall commence . It is held that this is done to indicate that although the winding up does not in fact commence at time of presentation of petition, it nevertheless shall be taken to commence from that stage. In this case it is held that there is no conflict between section 441 of the Companies Act and section 20 of the Displaced Persons (Debt Adjustment) Act, 1951. 25. Mr. Chinoy also relied upon the case of Gorakpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make payment and the offence is deemed committed. He submits that a subsequent order of winding up, even though it relates back, would have no effect on the offence which is already deemed committed. He submits that a winding up order affects payments/dispositions, if any made. He submits that on a winding up order being passed the Official Liquidator would get a right to apply for return of money/property. He submits that the Court may or may not protect/sanction the payment/disposition. He submits that the offence is deemed committed for non payment. He submits that subsequent winding up order cannot affect the offence as in this case there is no disposition or payment. 28. Mr. Chinoy relied upon the cases of Travancore Rayons Ltd. v. Registrar of Companies, reported in (1998) 64 CC 819 and In Re Navjivan Mills, reported in (1986) 59 CC 201. He also pointed out that almost all the authorities relied upon by Mr. Manohar, in support of the submission that transfers/dispositions made after presentation of winding up petition would be void, recognise that the Company can carry on its business and activities. He submits that the' courts recognise the fact that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of this submission Mr. Tulzapurkar relied upon the commentary in Principles of Statutory Interpretation by Justice G.P. Singh, Sixth Edition pg. 242 wherein it has been stated that in interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose that fiction is created. It is stated that in so construing the fiction is not to be extended beyond the purpose for which it was created, or beyond the language of the section by which it is created. It is stated that the legal fiction cannot be extended by importing another fiction. It is also stated that a legal fiction in terms enacted for the purposes of one Act is normally restricted to that Act and cannot be extended to cover another Act. 31. Mr. Tulzapurkar also relies upon the case of Union of India v. Sampat Raj Dugar, reported in 1992(58)ELT163(SC) . In this case the Supreme Court has held that the interpretation which is to be placed upon a provision should be consistent and designed to achieve the object of the Act. Mr. Tulzapurkar submits that to extend the legal fiction, as suggested by the petitioners, would amount to defeating the object for which section 138 of the Negoti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity initiated proceedings against the company in the Magistrates' Court alleging that the company had committed an offence under section 146 of the Social Security Act, 1975. It was clarified that the sole purpose of the proceedings was to proceed against the Directors of the company. The Liquidator applied for stay of the proceedings. The Court held that by bringing the proceedings the department was not seeking another method of having its claim adjudicated on but was merely enforcing a statutory right which had been conferred on it by the Social Security Act, 1975. The Court held that the Social Security Act gave a right to proceed in the Magistrates Court and it was for the Magistrate to decide whether the department was to be deemed to have been paid all its contribution in full. The Court held that it would not prevent the department from recovering in criminal proceedings a penalty imposed by statute. 37. Mr. Jethmalani appearing for the 2nd respondent in Criminal Writ Petition No. 296 of 1998 submits that section 138 of the Negotiable Instruments Act and section 536(2) of the Companies Act operate in entirely different fields. He submits the term void' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n arises as a result of the wording of. section 138 of the Negotiable Instruments Act. Under this section before an offence can be deemed to have been committed there must be failure to make payment within 15 days of receipt of notice of demand. The question is whether a party, who is precluded or estopped from making payment, can be said to have failed to make payment . If for example an order of winding up had been passed or the Provisional Liquidator had been appointed before the period 15 days were over, then there could have been a legal disability to pay. Similarly if there was an order of injunction preventing payment there would be a legal disability. If a legal disability prevented the company or its Directors from making payment, an arguable question may arise whether the party who has been so prevented could be said to have failed to make payment . The question does not arise before us in these petitions. We therefore do not express any opinion on that point. 43. In all these matters till the end of the period of 15 days, there has been no order of winding up nor any order appointing Provisional Liquidator. However in all these matters, a petition for windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of a petition for winding up all dispositions were void, it would lead to absurd or catastrophic results. In our view that can never be the legal position. 45. Undoubtedly as laid down in Kamani Metallic Oxides case (supra) the words in the winding up in section 536(2) mean during winding up proceedings . However that does not mean that merely because a petition for winding up has been presented all transactions/dispositions undertaken, during the period the petition is pending, become void ab initio. If they were to be void ab initio i.e. immediately on their being entered into, then on the petition being withdrawn or dismissed, they would not revive. It is clear that if the petition is withdrawn of dismissed then the transactions would never have been void . This clearly shows that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a Provisional Liquidator. What section 536(2) read with section 441(2) provides for is to convert what was otherwise valid into void by virtue of the legal fiction. Thus the voidness takes effect on the passing of the order of winding up or appointment of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that merely on the presentation of a petition for winding up, the directors of the company do not cease to be in charge of and responsible to the company for the conduct of the business of the company. If the proposition as canvassed by the petitioners is to be accepted then merely on the presentation of a petition for winding up, alt affairs of the concerned company would come to a standstill. In that case on a strict construction even wages and salaries of the employees and Directors could not be paid, no statutory payments/contributions could be made, no payment could be made for goods or raw materials required by the company for its survival, no monies could be raised even though it may be required for the purposes of running the company. The effect would be that merely on presentation of a petition for winding up the company would get completely paralyzed. The law never contemplated or envisaged such a drastic result merely on the presentation of a petition for winding up. It is clear that for the purpose of carrying on commercial activities of the company payments can be made, goods can be purchased and the normal activities of the company can be carried on. Of course if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that, at the time when these undertakings were given and/or payments made, neither the company nor its Directors thought that they were prohibited by law from making payment. The facts of these cases therefore show that the non payment within 15 days from receipt of notice was not because the company or its Directors considered themselves to be under a legal disability to make payment. If that be so, then failure to make payment is factually not by reason of any provision of any law. The failure to make payment is factually because as stated above, either there was inability to pay or lack of funds or for some other reasons best known to the Companies. 50. It has also been shown to us that oh 26th March 1998 in Company Petition No. 360 of 1997 a statement was made that in the proceedings under section 138 of the Negotiable Instruments Act, an undertaking had been given to satisfy the claims. On the basis of this statement, the company petition is got dismissed. This in spite of fact that this criminal writ petition was filed on 10th March 1998 and an ad-interim order of stay of the proceedings under section 138 had been obtained on 17th March 1998. It appears to us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offence has already been committed then the subsequent order cannot absolve the company or its Directors of the offence nor give rise to any defence in the proceedings under section 138 of the Negotiable Instruments Act. To be remembered that the subsequent order would only relate back and affect dispositions of property or payments made. In proceedings under section 138 of the Negotiable Instruments Act the deemed commission of offence is not by virtue of any disposition of property or payment but the by virtue of any non-payment. Thus once there is failure to make payment during the period of 15 days from receipt of notice, the subsequent order of winding up or appointment of Provisional Liquidator does not absolve the failure during the period of 15 days. For this reason we do not accept the submission of Mr. Manohar that the subsequent order appointing the provisional liquidator and also that the certainty of an order of winding up being passed in case of Orkay Industries Limited absolves the offence which has already been committed much earlier. 54. Mr. Manohar also submitted that there is a conflict between the provisions of section 138 of the Negotiable Instrumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but on a dismissal of petition an offence is deemed to have been committed. As stated above, the commission of the offence is not dependent upon the winding up of the company but is dependent upon dishonour and non-payment of the amount within 15 days of the receipt of the notice. It is at this stage that the offence gets completed. 56. Mr. Manohar also submitted that till the disposal of all the winding up petitions there should be a stay of the proceedings under section 138 of the Negotiable Instruments Act. These submissions were based on the same grounds on which the proceedings were sought to be quashed. In our view, there can be no stay of the proceedings under section 138 of the Negotiable Instruments Act. As stated above, these proceedings have no bearing and are entirely unrelated and unconnected with the pending petitions. Even if an order of winding up is now passed and/or the order appointing Provisional Liquidator can have no effect on the proceedings under section 138 of the Negotiable Instruments Act. Therefore, there can be no stay of these proceedings. The authority relied upon by Mr. Manohar in the case of Sunil Chandra has no relevance at all. That was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The notice of dishonour was given on 7th June 1996 and the 15 days expired on 22nd June 1996. The complaint has been filed on 17th July 1996. As stated above, all the five pending petitions were dismissed on 25th September 1996. In this case, there is one further fact. On 23rd January 1998, the company through its Directors gave an undertaking to the Magistrate to make payment in four equal installments. Thereafter one installment has been paid by the company. In this case in spite of other pending petitions, the company and its Directors have chosen to give an undertaking that they would make payment and have in fact made payment of one installment. Also to be noted that at the time that the company gave the undertaking to the Magistrate, it had not been stated or pointed out that there were pending company petitions. The fact has been suppressed and/or not mentioned to the concerned Magistrate undoubtedly because the company and its Directors never considered the pendency of company petitions as a bar which precluded them from making payments. 59. It must be mentioned that this company has also given undertaking to the Magistrate in proceedings under section 138 launche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries Limited and the accused in Case No. 2225/S/97, 1080/S/97, 1084/S/97, 1085/S/97, 1081/S/97, 716/S/97, 1896/S/97, 1895/S/97 and 1006/S/97 in the matter of Atash Industries (India) Limited are directed to appear before the Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Bombay on Thursday, 30th July 1998. 66. All the accused in Case Nos. 1142/S/97 and 1141/S/97 in the matter of Orkay Industries Limited and the accused in Case Nos. 662/S/97, 2106/S/97, 91/S/97 in the matter of Atash Industries (India) Limited are directed to appear before the Additional Chief Metropolitan Magistrate, 5th Court, Dadar, Bombay on Friday, 31st July 1998. 67. All the accused in Case Nos. 163/S/97 and 203/S/97 in the matter of Orkay Industries Limited are directed to appear before the Additional Chief Metropolitan Magistrate, 9th Court, Bandra, Bombay on Monday, 3rd August 1998. 68. All the accused in Case Nos. 1244/S/97, 1245/S/97, 628/S/97, 1021/S/97, 1020/ S/97, 2076/S/97 and 1689/S/97 in the matter of Atash Industries (India) Limited are directed to appear before the Additional Chief Metropolitan Magistrate, 40th Court, Girgaum, Bombay on Tuesday ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
