Court considers Companies Act proviso in issuance of process, quashes orders due to substantial dispute

The court held that the Magistrate should consider the proviso and deeming provision in Section 127(c) of the Companies Act while issuing process. The existence of a substantial dispute between the parties affected the issuance of process under Section 127(c), leading to the quashing of the orders of issuance of process by the Sessions Court. The court found that the dispute regarding the right to receive dividends was genuine and pending before competent authorities, thereby justifying the quashing of the process.

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Issues Involved:
1. Whether the Magistrate should consider the proviso and deeming provision in Section 127(c) of the Companies Act while issuing process.
2. Whether a dispute exists in the present matter and if it can affect the issuance of process under Section 127(c) of the Companies Act.

Detailed Analysis:

Issue 1: Consideration of Proviso and Deeming Provision by Magistrate
The judgment addresses the legal question of whether the Magistrate, while issuing process or notice for an offence, should take into account the proviso and deeming provision in Section 127(c) of the Companies Act, or if it is barred under Section 105 of the Evidence Act.

The court examined various precedents to clarify the role of provisos and deeming provisions in statutory interpretation. It was emphasized that a proviso is not merely an exception but can control the main section to avoid ambiguity. The court cited multiple Supreme Court cases, including Indian Oil Corporation Ltd. vs. Chief Inspector of Factories & Ors. and ALI M.K. & Ors. vs. State of Kerala & Ors., to illustrate that the proviso and deeming provisions are integral to the section they qualify.

The court concluded that the proviso in Section 127(c) should be considered by the Magistrate while issuing process. The proviso, which includes the deeming provision, forms a part of the section and cannot be overlooked.

Issue 2: Existence of Dispute and its Impact
The court analyzed whether a dispute regarding the right to receive dividends exists and if such a dispute can affect the issuance of process under Section 127(c) of the Companies Act.

The court noted that the dispute between the parties was admitted and pending before various legal forums, including the National Company Law Tribunal (NCLT) and arbitration proceedings. The court referred to the Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. case, which defined a "dispute" under the Insolvency and Bankruptcy Code, indicating that a real dispute as to payment must exist and not be spurious or illusory.

The court found that the existence of a dispute was evident from the records and that the dispute was substantial and pending before competent authorities. Therefore, the non-payment of dividends due to this dispute falls within the proviso of Section 127(c), which states that no offence is committed if there is a dispute regarding the right to receive the dividend.

Conclusion:
The court held that the Magistrate should have considered the proviso and deeming provision in Section 127(c) while issuing the process. The existence of a dispute between the parties was clear and substantial, making the issuance of process under Section 127 inappropriate. Consequently, the orders of issuance of process by the Sessions Court were quashed and set aside.

Orders:
1. The orders of issuance of process passed by the Sessions Court are quashed and set aside.
2. The criminal applications are allowed to the extent of quashing the process.
3. The request for a stay of the order by the respondents was denied.

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