TaxTMI Login
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →Just a moment...
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether the power to stay proceedings under section 391(6) of the Companies Act, 1956 extends to criminal proceedings, including complaints under section 138 of the Negotiable Instruments Act; (ii) Whether directors, guarantors, or sureties of the company can claim the benefit of a stay under section 391(6); (iii) Whether notice under rule 71 of the Companies (Court) Rules, 1959 was required to be given to petitioning creditors whose winding up petitions were pending.
Issue (i): Whether the power to stay proceedings under section 391(6) of the Companies Act, 1956 extends to criminal proceedings, including complaints under section 138 of the Negotiable Instruments Act.
Analysis: The expression used in section 391(6) was held to be confined to proceedings of a civil or pecuniary character having a nexus with the compromise or arrangement. The earlier binding view was followed that criminal prosecutions are not meant to be frozen or stayed under that provision, even where the complaints may have a monetary background. The provision was treated as intended to protect the scheme process, not to create immunity from criminal liability.
Conclusion: The power under section 391(6) does not extend to criminal proceedings, including proceedings under section 138 of the Negotiable Instruments Act; this issue is decided against the company.
Issue (ii): Whether directors, guarantors, or sureties of the company can claim the benefit of a stay under section 391(6).
Analysis: The statutory stay was held to operate only between the company and its creditors or members. A composition or scheme sanctioned under section 391 does not, by itself, discharge or protect sureties unless the contract of suretyship so provides. Persons who are not parties to the scheme cannot claim its protection merely because they are connected with the company.
Conclusion: Directors, guarantors, and sureties are not entitled to the benefit of section 391(6) unless their own contractual position independently confers such protection; this issue is decided against the company.
Issue (iii): Whether notice under rule 71 of the Companies (Court) Rules, 1959 was required to be given to petitioning creditors whose winding up petitions were pending.
Analysis: A winding up petition remains pending so long as it is not finally disposed of, even if it is temporarily incapable of being proceeded with because of proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985. Rule 71 was construed liberally, and the requirement of notice was treated as mandatory where a winding up petition was pending, because an application for stay under section 391(6) directly affects the petitioning creditor's rights.
Conclusion: Notice under rule 71 was required to be served on the petitioning creditors; the ex parte stay application was procedurally defective on this ground, and this issue is decided in favour of the creditors.
Final Conclusion: The company was not entitled to the stay sought against criminal proceedings or against proceedings involving guarantors, and the ex parte stay application failed for want of notice to the petitioning creditors. The earlier stay was therefore not sustained.
Ratio Decidendi: Section 391(6) of the Companies Act, 1956 authorises a stay only of civil proceedings bearing on the compromise or arrangement, does not extend to criminal prosecutions, does not protect sureties or non-parties to the scheme absent their own contractual protection, and requires notice to petitioning creditors where a winding up petition remains pending.
TaxTMI 
TaxTMI 
