Bombay High Court

Bombay High Court

In The Matter Of Winding Up Order ... vs Unknown on 4 September, 1998
Equivalent citations: 1999 (1) BomCR 84
Author: F Rebello
Bench: F Rebello
ORDER
F.I. Rebello, J.
1. Company Application No. 446 of 1998 has been moved by the applicants wherein they have prayed that
they be allowed to prosecute the respondent Company and its Directors in Criminal Case No. 251/S of 1998 at
Dadar Court and in Criminal Case No. 611/S of 1998 at Girgaum
Court in respect of complaints which have been filed under the provisions of section 138 of the Negotiable
Instruments Act. In a company petition filed against the Company by Minutes of Order dated 3rd January,
1997, it was provided that, in the event the Company failed to pay the instalments, the Official Liquidator in
terms of Clause (3) of the Minutes of Order was to stand appointed as Provisional Liquidator. There was a
failure by the Company to pay in terms of the Minutes of 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 to prosecute the complaints against the Company only, as
no permission is required to prosecute or continue the prosecution of the officers involved.
Company Application (Lodging) No. 621 of 1998 has been taken out in Company Petition No. 220 of 1997
under section 442(b) of the Companies 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 Metropolitan Magistrate's 38th Court at Ballard Pier, Mumbai.
2. 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 opposition to the points being decided here have been advanced by respective
Counsel in those applications. The question of law is being decided in these two applications.
3. The question of law which arises is whether the expression 'suit or other legal proceedings' in section
446(1) and the expression "suit or proceedings" in section 442, under Chapter II of Part VII of the Companies
Act, include criminal complaints filed under section 138 of the Negotiable Instruments Act.
On behalf of the Companies involved, it is contended, that the expression legal proceedings or other legal
proceedings should be given its widest amplitude and must therefore also include criminal proceedings. It is
pointed out that if this is not so a company in winding up would be subject to criminal prosecution. This
would defeat the object of sections 442 and 446 of the Companies Act. Reliance for the same has been placed
on judgments of various High Courts as also on English Law as reported in 1982(2) All E.R. 882.
On the other hand it is contended on behalf of the petitioners in these company petitions and others that the
expression "legal proceedings" or "other legal proceedings" must be read ejusdem generis with the expression
'suit'. If so read it is pointed out, it can only refer to civil proceedings which have a direct bearing on
proceedings for winding up of the Company and consequently other legal proceedings must exclude criminal
proceedings. Reliance has been placed on various authorities.
4. It would therefore in the first instance be necessary to consider the expressions/terminology used. Section
442 of the Companies Act uses the expression 'suit or proceedings'; Whereas section 446 of the Companies
Act uses the expression 'suit or other legal proceedings'. Under section 454 subsection (5) in the event any
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person, without reasonable excuse, makes de-
fault in complying with any of the requirements of the section such person is liable to be punished with
imprisonment. For this purpose the Court by which the winding up order is made can take cognisance of an
offence under subsection (5-A). Therefore a specific power to entertain a criminal complaint has been
conferred. Under section 457(1)(a) the Liquidator with the sanction of the Court has the power to institute or
defend any suit, or other legal proceedings in the name and on behalf of the Company . Section 542 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 621(3) 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 plaintiff. Under section 633 an Officer of a Company in
respect of certain types of misfeasance or breach of trust who apprehends that proceedings may be initiated
against him, may move the High Court to relieve him, as if it is the Court before which a proceedings against
that officer could have been brought.
A perusal therefore of these sections would indicate that wherever Parliament choose to confer power on the
Company Court to try criminal offences. It has so done. It also indicates the power conferred on a Liquidator
to initiate or defend prosecutions against the Company with the leave of the Court. Section 457(1)(a) therefore
has importance while deciding the issue. The Legislature therein has used the expression "suit, "prosecution"
or "other legal proceedings". The rule of interpretation in such a case is not to make the language redundant or
otiose or hold it to be surplus-age. If the literal interpretation is accepted then the expression 'prosecution' has
a different meaning than the expression 'legal proceedings'. The expression also appears in the same part and
chapter. The main purpose or object behind sections 446 and 442 is that in respect of a Company in winding
up or where proceedings in winding up have been filed, the Company Court is to see that the assets of the
company are not recklessly given away or frittered. In this context, one has to remember the main duty of the
Company Court is to oversee the affairs of the Company to meet the debts of its secured or its unsecured
creditors as also of its shareholders and powers have been accordingly conferred on it. It may also be noted
that for the purpose of the Act, Court means under section 2(ii) the Court having jurisdiction under the Act
with respect to the matters relating to the Company under section 10 of the Act and in respect of any offence
under the Act Judicial Magistrate, First Class, or Presidency Magistrate having jurisdiction. In this context
would the expression "other legal proceedings" or "legal proceedings" include 'criminal proceedings'.
An illustration may be considered for the purpose of considering the contention. The Liquidator or the
Provisional Liquidator on his appointment becomes the Liquidator for the Company. It is he who thereafter is
empowered to represent the Company by standing in the shoes of the Board of Directors. In various
Legislations apart from the Directors, Company is also liable for prosecution. This could be under Labour
Legislations and/ or Special Acts like Essential Commodities Act and/or 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 is 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.
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6. 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 large number of judgments. In Sudarsan Chits (I) Ltd. v. O.
Sukumaran Pillai and others, , the Apex Court was considering the true scope and ambit of the jurisdiction
conferred on a Company Court under section 446(2)(d). The Apex Court noted the amendment brought by the
Companies (Amendment) Courts Act, 1960. After considering the background of section 171 of the Indian
Companies Act. 1913, the report of the Committee based on which the amendment was brought about, the
Apex Court observed as under :-- "In the absence of a provision like section 446(2) under the repealed Indian
Companies Act, 1913, the Official Liquidator in order to realise and recover the claims and subsisting debts
owed to the company had the unenviable fate of filing suits. These suits as is not unknown, dragged on
through the trial Court and Courts of appeal resulting not only in multiplicity of proceedings but would hold
up the progress of the winding up proceedings. To save the Company which is ordered to be wound up from
this prolix and expensive litigation and to accelerate the disposal of winding up proceedings, the Parliament
devised a cheap and summary remedy by conferring jurisdiction on the Court winding up the company to
entertain petitions in respect of claims for and against the company. This was the object behind enacting
section 446(2) and therefore, it must receive such construction at the hands of the Court as would advance the
object and at any rate not thwart it."
This view was reiterated by the Apex Court in the case of Central Bank of India v. M/s. Elmot Engineering
Company and others, . The Apex Court again in paragraph 14 of the judgment summarised the law in this
words :--
"This section aims at safeguarding the assets of a company in winding up against wasteful or expensive
litigation as far as matters which could be expeditiously and cheaply decided by the Company Court are
concerned. In granting leave under this section, the Court always takes into consideration whether the
company is likely to be exposed to unnecessary litigation and cost."
The object as now culled from judgments is to protect the assets of the company as the petition for winding
up, other than voluntary winding relates back to the date of presentation of the petition for winding up.
A learned Single Judge of this Court in the case of Central Bank of India v. Elmot Engineering Co. Put. Ltd.
& others, 1993 Mh. L.J. 671, has observed that the object of the section is to see that the assets of the
company are brought under the control 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.
English Courts seem to have taken the same view. In (Re. J. Burrows (Leeds) Ltd.), 1982(2) All. E.R. 882,
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."
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 arose out of a voluntary winding up proceedings where a Liquidator had been appointed. A claim was
made by the Department of Health and Social Security which claim was admitted by the Liquidator. After that
criminal proceedings were initiated against the Company. If convicted the Company was liable to pay to the
Secretary of State a sum equal to the amount which it has failed to pay. The Liquidator applied for stay of the
criminal proceedings. It is in that context that the issue arose whether proceedings would include criminal
proceedings. In that case however the Department had made it clear that if the Company was convicted they
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would not seek to enforce the claim against the Company. On the facts of that case, application for staying the
proceedings was rejected.
7. Having considered the object of the section, the next question therefore which has to be answered is the
meaning of the expression "proceedings" or "other legal proceedings". Whether they mean the same thing.
That need not detain us for long. Section 446(1) uses the expression 'other legal proceedings'. Section
446(2)(a) uses the expression "proceedings". They are both powers conferred on the Court in respect of a
company in winding up. One after presentation of a petition, the other on a Liquidator being appointed or
winding up order being made. Reference may now be made in that context to a
judgment of the Apex Court in the case of S. V. Kondaskar, Official Liquidator and Liquidator of the Colaba
Land & Mills Co. Ltd. v. V.M. Deshpande, Income-Tax. Officer and others, 1972(42) Company Cases 168.
The Apex Court was considering whether the Court dealing with the liquidation proceedings could itself
exercise the power of Income Tax Officer and assess the Company, by construing the expression 'other legal
proceedings'. In the course of the discussion the Apex Court noted after looking at the language and history of
section 446 and read as a whole it appeared that the expression 'other legal proceedings' in sub-section (1) and
expression 'legal proceedings' in sub-section (2) of section 446 convey the same sense and the proceedings in
both the sub-sections must be such as can appropriately be dealt with by the Company Court. If the
expressions in section 446 are so construed there is no reason not to follow the same in so far as section 442 is
concerned as its object also is to protect the assets of the company and as 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.
That brings us to the question as to the scope and ambit of sections 442 and 446 including the expressions
"proceedings" or 'other legal proceedings'. Dealing with the said contention in S. V. Konduskar (supra) as to
whether the Company Court could itself assess 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 the
winding up Court with the powers of an Income Tax Officer conferred on him by the Income Tax Act,
because in our view, the legislature could not have intended such a result."
The Apex Court thereafter noted if an order is made by the Assessing Officer there are various provisions
whereby the person assessed can have further remedy, whereas if the Company Court itself carried out
assessment then the Assessee would be denied such other legal steps available to him in law.
8. Thus having considered the scope of the section and also the meaning of the expression "other legal
proceedings" and "legal proceedings", it would be advantageous to consider the language of sections
themselves considering the object and the purpose for which the sections find place in the Companies Act.
Section 442 is a power conferred on the Company Court whereby in the event a suit or proceeding is pending
in the Supreme Court or in any High Court against the Company to apply to the Court in which the suit or
proceeding is pending for a stay of the proceedings therein and in the event the suit or proceedings is pending
against the Company any other Court apply to the Competent Court having jurisdiction to wind up the
Company to restrain further proceedings in the suit or proceedings. Thus scope of the expression 'proceedings'
would therefore have to be examined. Whether this
would including each and every proceeding against the Company or whether this would be proceeding having
a direct bearing on the winding up. The next section is section 446. This section spring into action only after
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an order for winding up has been made or the Official Liquidator has been appointed as a Provisional
Liquidator. Once this happens, no suit or the legal proceeding can be commenced against the Company or if it
is pending at the date of the winding up order can be proceeded with except by leave of the Court and subject
to such terms as the Court may impose. By virtue of sub-section (2), the Court dealing up with the winding up
proceeding itself can assume jurisdiction to entertain and dispose of any suit or proceeding by or against the
Company; any claim made by or against the Company including claims by or against any of its branches in
India; in application made under section 391 by or in respect of the company. Section 391 is the provision
pertaining to compromise or making arrangement with creditors and members and any question of probability
or any other question whatsoever whether of law or facts which may relates 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 in 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 Limited in Liquidation, 1946(16)
Company Cases 71, 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 Income tax Officer should lodge a claim in the winding up proceedings
and that at any rate the Income tax Officer 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 a "legal proceedings" within section 171 of the Indian Companies Act, 1913, and
accordingly, before forwarding the requisite certificate under section 46(2) to the Collector for the collection
of the arrears of income tax as arrears of land revenue, the Income tax Officer ought to have applied under
section 171 of the Indian Companies Act for leave of the winding up Court. In Joshi Trading Co. (P) Ltd. v.
Essa Ismail Sait, 1980(50) Company Cases, 801, a Single Judge of the Kerala High Court was considering the
question whether proceedings for eviction under the Kerala Buildings (Lease and Rent Control) Act would be
'other legal proceedings' for the purpose of section 446(1) of the Indian Companies Act, 1956. After
considering various judgments of the Apex Court and of the various High Courts, the learned Single Judge
held that there was necessity for getting the sanction of the company Court. In that case the Official
Liquidator was joined as a party. He could have under section 437 obtained a sanction of the Company Court
to defend the proceedings. He chose not to take any steps. Consequent whereupon the Rent Controller was
pleased to pass an order for eviction. In Damji Valji Shah and another v. Life Insurance Corporation of India
and others, 1965(35) Company Cases 755, the Apex Court was considering the question as to whether the
provisions of the Life Insurance Corporation Act, 1956 would override the provisions of the Company Act.
The Life Insurance Corporation Act came into force on 1st
July, 1956 and the appointed date was 1st September, 1956. The order for winding up was made subsequently.
The question was whether the leave of the Company Court would be required. The Apex Court held that leave
would not be required. In the case of Life Insurance Corporation of India v. Asia Udyog (P) Ltd. and others,
1984(55) Company Cases 187, a Full Bench of the Delhi High Court was considering the question whether
the provisions of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 would be "other legal
proceedings" and as such sanction under section 446 had to be taken. The Full Bench held that the said
proceedings cannot be decided by the Company Court and as such prior sanction is not required. However, the
Full Bench held that when it come to realisation of dues, the Court dealing with the winding up case in picture
and at this stage the prior leave will have to be obtained for starting proceedings for recovery. A similar view
was taken by the Punjab and Haryana High Court in the case of Harbans Lal Sharma v. Chemical Vessels
Fabricators Pvt. Ltd., 1989(65) Company Cases 506. The learned Single Judge there held that the expression
"no suit or legal proceedings" meant proceedings in which assets or effects of the company were involved. In
the 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 Manilal Akhaney v. The State of
Bombay, , 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
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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 name of, or on behalf of, the
company, it naturally becomes the concern of the Judge to see whether or not it was worthwhile to incur
expenses on behalf of the company and therefore, the section requires the sanction of the Judge before the
liquidator can undertake the prosecution or defence in the name of and on behalf of the company."
This would be so under section 457(1)(a) of the Companies Act. What may be noticed is that the Court has
not held that criminal proceedings could be withdrawn to itself and decided by the Court in winding up.
Therefore the ordinary power of the Magistrate to entertain a complaint is not controlled by the Company
Court. The power to try criminal offences is conferred on Magistrate and Sessions Courts by virtue of the
provisions of Criminal Procedure Code. In the event the Liquidator wants to launch a prosecution all that the
Company Court does is to examine whether it is worthwhile to launch a prosecution and incur expenses on
behalf of the Company. Powers like section 457 are enabling powers permitting the Liquidator to do certain
things with the sanction of the Court.
In State of Tamil Nadu v. Uma Investments Pvt. Ltd., 1977(47) Company Cases 242, this Court was
considering whether criminal proceedings
against the Company or its Officers fell within the expression 'suit' or 'other proceedings' under section 391(6)
and if so whether such proceedings ought to be stayed. While so considering the learned Single Judge of this
Court noted that in respect of the powers under section 391 to compromise or make arrangements with
creditors and members is concerned if it was the intention of the Legislature to stay the commencement or
continuation of criminal proceedings it would have expressly said so and as such the expression 'proceedings'
would not include criminal proceedings. Then further examining the nature of proceedings under section
391(6) the Court observed that the character of proceedings should be of pecuniary nature involving money
considerations between the company and its creditors or members having a nexus or 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 proceedings referred to in this sections are civil proceedings and do not
apply to criminal proceedings. The learned Judge 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 Limited and others v. The State
of Maharashtra & others, . It may be made clear that the issue involved in these applications were no 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 the 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 transaction in respect of the
property or assets moveable or immovable become void under section 536 of the Companies Act. 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
after the ingredients of section 138 are satisfied and that mere filing of petition for winding up would not
result in rendering void any disposal of moveable or immovable property. In para 53 of the Judgment the
Division Bench noted that a subsequent order appointing a Provisional Liquidator or winding up of the
company can have no bearing on the proceedings under section 138 of the Negotiable Instruments Act once
the offence is deemed committed prior to such an order being passed. The learned Bench observed, if prior to
the order of winding up or appointment of Provisional Liquidator an 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, Thereafter in para 56 the contention
raised on behalf of the petitioners that proceedings under section 138 be stayed on account of the fact that the
proceedings in winding up had been filed was rejected on the ground that the proceedings have no bearing and
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are entirely unrelated and unconnected with the pending petition (winding up). It is further observed that even
when the order of winding is passed and/or the order made appointing a Provisional Liquidator can have no
effect on the proceedings under section 138 of the Negotiable Instruments Act. Therefore, there can be no stay
of the proceedings.
9. For the contrary view reliance is placed on the judgment of the Single Judge of the Delhi High Court in
Official Liquidator, R.C. Abrol & Co. Pvt. Ltd. v. R.C. Abrol and others, 1977(47) Company Cases 537. A
perusal of the facts in that case would show that the Official Liquidator had filed a criminal complaint in the
High Court which ordered winding up of the Company, against the Directors and officials under section 538
and 541 of the Companies Act. The learned Single Judge of the Delhi High Court was also considering as to
whether a Company Court could withdraw to itself criminal proceedings pending before the Magistrate and
decide the same. In that context the Court observed on the facts of the that case that a criminal complaint
cannot be instituted in the Delhi High Court because the Court had no powers to take cognizance of the
offence. This was after considering the provisions of the Criminal Procedure Code. The Court thereafter
observed that however the Court under section 446(3) could withdraw certain cases to itself including
criminal case. 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.
The other judgment relied upon is of a Single Judge of the Gujarat High Court in the case of Harish C.
Raskapoor and others v. Jaferbhai Mohmedbhai Chhatpar, 1989(65) Company Cases 163(Guj.) 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 Pvt. 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 and Co. Pvt.
(supra). I am unable to accept the view taken by the learned Judge of the Gujarat High Court in construing the
word" proceedings" under section 391(6). The view taken by this Court in Uma Investments (supra) and the
view of the Division Bench in Orkay Industries Ltd. (supra) are in conformity with object of the Act. Under
section 621 of the Companies Act, complaints for offences under the Act can be filed except on a complaint
by a Registrar or of a shareholder of a Company or a person authorised by the Central Government.
Per-"mission of the Company Court is not required. Under section 446(1) suit or other legal proceedings
cannot be commenced without the permission of the Court. The language of section 621(1) will therefore
indicate that the Company Court has no control over offences under the Act except under section 545.
Similarly, under section 621-A the power of composition of offences under the Act is not of the Company
Court but by Authorities like company Law Board or Regional Directors. The Company Court has no such
power.
It is therefore clear that the expression legal proceedings means only those proceedings which have a bearing
on the assets of a Company in winding up or have some relation with the issue in winding up. It does not
mean each and every civil proceedings which has no bearing on the winding up proceedings or
criminal offences where the Company was liable to be prosecuted for. It is not as if there is no control over
such other proceedings. The Liquidator under section 537, if he feels the need, can apply to the Company
Court to intervene and the Company Court can always grant or refuse sanction.
10. With this background the question of granting permission to prosecute or staying proceedings under
section 138 read with section 141 of the Negotiable instruments Act can be considered.
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In so far as Directors are concerned, the question of granting sanction to prosecute or staying proceedings
does not arise at all. The only question is whether in so far as the Company is concerned, the proceedings can
be stayed as section 141 makes the Company also liable. The language of the section is clear. The expression
used is every person who was in charge of the Company when the offence was committed . Can the normal
process of proceeding with the criminal complaint be stayed because a winding up process has been initiated.
Does the criminal law set in motion for an offence come to a halt, or cart 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 bearing on the assets of the Company. Therefore construing the Judgement of the Apex Court in
the case of S. V. Kondaskar (supra) it is impossible to contend that the Company Court in winding up would
have jurisdiction to stay the criminal prosecution or that permission of the Company Court is required to
prosecute the Company for offences committed before a Provisional Liquidator is appointed or an order of
winding up is made. In a rare case if the Liquidator himself is to be held liable for acts of the Company there
is always powers in him to seek permission of the Company Court to prosecute or defend such prosecution.
The expression legal proceedings or other legal proceedings for the purpose of section 442 and 446 must be
read ejusdem generis with the expression "suit" and can mean only civil proceedings which have bearing in so
far as the winding up is concerned namely realisation of the assets and discharge of liabilities of the Company.
It is true that in the case of Re. J. Burrows (Leeds) Ltd. (supra) the Chancery Division in England has
interpreted similar language in their Companies Act to include criminal proceedings. The matter there was
being considered on an application by the Official Liquidator for stay of the criminal proceedings. The
complaint there was filed under section 146(1) of Social Securities Act, 1975 as the Company in winding up
failed to pay certain contribution. On conviction of the Company under the Act, the fine can be recovered
from the Directors. A statement was made before the Company Court that no steps would be taken against the
Company and the
object of prosecuting was only to recover amount from Directors. It is on the facts of that case the expression
'proceedings' was construed to mean also criminal proceedings. I am however unable to accept the contention
that the expression "legal proceedings" or "other legal proceedings" would include criminal complaint under
section 138 of the Negotiable Instruments Act for the reasons set out in the earlier part of the judgment.
11. In the light of that relief as prayed for in Company Application No. 446 of 1998 in Company Petition No.
457 of 1997 has to be rejected.
In so far as the Company Application (Lodging) No. 621 of 1998 in Company Petition No. 220 of 1997 is
concerned, there are two prayers (i) for stay of the proceedings against the Company under section 442 and
prayer (ii) is for extending time to deposit the entire amount as ordered in this Court. For the reasons for
which I have rejected the contention of the expression other legal proceedings in section 446 must also apply
to section 442 and therefore the said prayer has to be rejected. Counsel for the Company prays that he may be
given two months more time to deposit the amount. Considering that the period of four months has already
expired on 28th August, 1998 and the bona fide shown by the Company in expressing its willingness to pay
the amount, time of two months as prayed for is granted. In other words, in order dated 28th April, 1998 the
period of four months is extended by a further period of two months only. Needless to say if the Company
makes a payment, the Criminal Court will consider this fact while disposing off the Complaint. Hence the
following order:-
ORDER
In The Matter Of Winding Up Order ... vs Unknown on 4 September, 1998
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i) Company Application No. 446 of 1998 in Company Petition No. 457 of 1997 is dismissed.
ii) Company Application (Lodg.) No. 621 of 1998 in Company Petition No. 220 of 1997 prayer (a) is allowed
in as much as additional time of two months is given from the expiry of the period from order dated 28th
April, 1998. Prayer (b) rejected.
There shall however be no order as to costs.
12. Petition dismissed. Petition II partly allowed.
In The Matter Of Winding Up Order ... vs Unknown on 4 September, 1998
Indian Kanoon - http://indiankanoon.org/doc/569815/ 9