2004 (11) TMI 327 - HC - Companies Law

Court dismisses Company Application No. 339 of 2004, vacates stay, extends appeal deadline. No costs awarded.

The court dismissed Company Application No. 339 of 2004 and made absolute the other company applications, vacating the stay granted by the order dated ... Compromise and arrangement Issues Involved:1. Applicability of Section 391(6) to criminal proceedings.2. Protection under Section 391(6) for guarantors and directors.3. Requirement of notice under Rule 71 of the Companies (Court) Rules, 1959.4. Maintainability of the proposed scheme under the Sick Industrial Companies (Special Provisions) Act, 1985.5. Entitlement of the company to an order under Section 391(6) in the given facts and circumstances.Issue-wise Detailed Analysis:1. Applicability of Section 391(6) to Criminal Proceedings:The court examined whether Section 391(6) of the Companies Act, 1956, which allows the court to stay proceedings against a company, includes criminal proceedings. It was argued that the term 'proceeding' in Section 391(6) does not encompass criminal proceedings. This submission was supported by a precedent from the High Court in 'State of Tamil Nadu v. Uma Investments (P.) Ltd. [1977] 47 Comp. Cas. 242,' where it was held that the word 'proceedings' in Section 391(6) does not cover criminal proceedings against the company and its officers. The court emphasized that the legislative intent was not to stay criminal proceedings, as criminal proceedings involve consequences for illegal acts, and offenders cannot seek refuge under Section 391(6).2. Protection under Section 391(6) for Guarantors and Directors:The court addressed whether the protection under Section 391(6) extends to guarantors and directors of the company. It was submitted that directors and guarantors are not entitled to the benefits of Section 391(6). This was supported by the Supreme Court judgment in 'Punjab National Bank Ltd. v. Shri Vikram Cotton Mills Ltd. [1970] 40 Comp. Cas. 927,' which held that a binding obligation under Section 391 does not affect the liability of a surety unless the contract of suretyship otherwise provides. The court concluded that the scheme under Section 391 does not release persons who are not parties to the scheme, and the language of Section 391(6) does not include guarantors or directors within its scope.3. Requirement of Notice under Rule 71 of the Companies (Court) Rules, 1959:The court examined whether the company was required to give notice to the applicants under Rule 71 when seeking an ex parte order under Section 391(6). Rule 71 mandates that notice be given to petitioners in pending winding-up petitions. It was argued that the winding-up petitions were pending, despite being stayed due to an appeal under the Sick Industrial Companies (Special Provisions) Act, 1985. The court held that the winding-up petitions were indeed pending and that the company was required to give notice to the petitioners, as the petitions had not been finally disposed of.4. Maintainability of the Proposed Scheme under the Sick Industrial Companies (Special Provisions) Act, 1985:The court did not find it necessary to decide on the maintainability of the proposed scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, in view of the conclusions reached on the other issues.5. Entitlement of the Company to an Order under Section 391(6) in the Given Facts and Circumstances:Given the conclusions on the above issues, the court did not find it necessary to decide whether the company was entitled to an order under Section 391(6) in the given facts and circumstances.Order:The court dismissed Company Application No. 339 of 2004 and made absolute the other company applications, vacating the stay granted by the order dated August 27, 2004. The order was extended to January 17, 2005, to enable the company to appeal. No order as to costs was made, and all parties were directed to act on an authenticated copy of the order.