TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Private complaint over false statements and repeated default under Companies Act ss. 448/451 quashed; IPC case transferred for trial</h1> Cognizance for offences under ss. 448 and 451 of the Companies Act on a private complaint was impermissible because s. 448 is an offence 'covered under s. ... Management and control of the Company - cognizance of the alleged offences under Sections 448 and 451 of the Companies Act could have been taken on a private complaint in view of the statutory scheme of the Companies Act or not - If the proceedings for the offences under Sections 448 and 451 of the Companies Act ought to be quashed, would the criminal proceedings also have to be quashed in respect of the offences under the IPC? - continuation of the criminal proceedings would amount to abuse of process of law or not. Whether cognizance of the alleged offences under Sections 448 and 451 of the Companies Act could have been taken on a private complaint in view of the statutory scheme of the Companies Act and if not, whether the criminal proceedings must be quashed in respect of those sections? - HELD THAT:- In the matter of taking cognizance with respect to ‘offence covered under section 447’, the interplay has been brought by the legislature under Section 212(6) of the Companies Act. The said section is in two parts – (I) the ‘offence covered under section 447’ shall be cognizable and (II) no person accused of any offence under those sections shall be released on bail, subject to twin conditions as mentioned therein. The first proviso to Section 212(6) provides a relaxation to children below 16 years of age, women, sick or infirm in the matter of releasing on bail. The second proviso relates to taking cognizance and makes a reference to first part of Section 212(6) whereby the Special Court has been permitted to take cognizance only on a complaint in writing by the Director, SFIO or any officer of the Central Government authorised by general or special order in writing in this behalf by the government. The said special provision has been enacted because as per Section 439 (1) and (2) of the Companies Act the other offences of the Companies Act were made non-cognizable. The offence under Section 448 is an offence ‘covered under Section 447’ of the Companies Act mentioned in Section 212(6), since the offence under Section 448 is inextricably linked to the punishment for ‘fraud’ as mentioned in Section 447 and as such, the second proviso to Section 212(6) of the Companies Act is attracted. The bar on taking cognizance by the Special Court in cases involving Section 447 of the Companies Act was a safeguard which was put in place to prevent filing of frivolous complaints by disgruntled company members / shareholders or competitors with vested interests. As such, in case an allegation of fraud under Section 447 of the Companies Act is to be made out, the complaint has to be made by the Director, SFIO or an officer authorized by a written order of the Government. This adds a further level of scrutiny and investigation prior to taking cognizance in cases where allegations of fraud are made and ensures that cognizance is not taken by the Special Court simply upon filing of a private complaint. Non-inclusion of the punishment section under Section 447 since the very inception will also lead to procedural absurdity since ultimately the said Section 447 of the Companies Act must be invoked in order to impose any punishment after trial is conducted. In saying so, we are aware of the proposition of law that cognizance is taken of an offence and not of a section under the law, and at the stage of framing charges, the Court may add or remove sections. However, in the present case, when there is a specific requirement under law which acts as a pre-condition for taking cognizance under Section 447 of the Companies Act, the decision of the Special Court to take cognizance under Section 448 of the Companies Act without invoking the punishment section, Section 447 cannot be countenanced. The offence under Section 451 of the Companies Act is for punishment in case of repeated default. Since it is found that cognizance cannot be taken for Section 448 of the Companies Act without following the requirements under the second proviso to Section 212(6) of the Companies Act, cognizance of ‘repeated default’ under Section 451 of the Companies Act is not made out - the inescapable conclusion reached is that the complaint case bearing C.C. No. 58/2022, the order dated 10.10.2022 of the Special Court and all consequential proceedings to the extent of Section 448 and 451 of the Companies Act shall stand quashed. If the proceedings for the offences under Sections 448 and 451 of the Companies Act ought to be quashed, would the criminal proceedings also have to be quashed in respect of the offences under the IPC in light of the provisions as contained in Section 436(2) of the Companies Act? - Whether continuation of the criminal proceedings would amount to abuse of process of law, warranting interference under Section 482 of CrPC? - HELD THAT:- Under the Companies Act, Section 436(2) governs the jurisdiction of the Special Court. The requirement of ‘same transaction’ is not present in Section 436(2) which only lays down the pre-requisite that the Special Court should be trying offences under the Companies Act, for it to also try offences under the IPC. As such, once the offences under the Companies Act are quashed, it is the Court of appropriate territorial jurisdiction which would have jurisdiction to try the private complaint filed by the Respondent No. 2 against the Appellants. The learned Judge of the Special Court where the C.C. No. 58 of 2022 is pending shall take steps, in consultation with the Principal District Judge of the district to transfer the complaint case to the appropriate court having territorial jurisdiction to try the complaint case. The Respondent No. 2 and the Appellants were in a commercial relationship and the inception of the dispute can be traced to a tussle for control over the Company. The civil suits filed by the Appellants are for seeking a permanent injunction against the Company and the Complainant from violating the terms and conditions of MoU dated 17.08.2016 and, a declaration that the agreements to sell executed by the Complainant with respect to the properties of the Company be declared void, respectively, while the Company Petition has been filed before the NCLT challenging the removal of the Appellants from directorship in the Company. Pendency of these proceedings would not absolve the criminality as alleged in the complaint, in the facts and circumstances of this case. Therefore, without expressing any views on merits of the complaint case, we hold that there is no reason or ground to quash the offences under the IPC of which cognizance has been taken by the Special Court. The complaint case bearing C.C. No. 58/2022, the order dated 10.10.2022 of the Special Court and all consequential proceedings to the extent of Section 448 and 451 of the Companies Act shall stand quashed - The learned judge of the Special Court where the C.C. No. 58 of 2022 is pending shall take steps, in consultation with the Principal District Judge of the district to transfer the complaint case to the appropriate court having territorial jurisdiction to try the complaint case. The said transfer shall be made within a period of 4 weeks and then the complaint case shall be adjudicated on its own merits, uninfluenced by any of the observations made hereinabove, as expeditiously as possible. Appeal allowed in part. Issues: (i) Whether cognizance of offences under Sections 448 and 451 of the Companies Act could be taken on a private complaint in light of the statutory scheme and the second proviso to Section 212(6); (ii) If the Companies Act offences are quashed, whether the Special Court can continue proceedings on the IPC offences in view of Section 436(2); (iii) Whether continuation of criminal proceedings would amount to abuse of process warranting quashing under Section 482 CrPC.Issue (i): Whether cognizance of alleged offences under Sections 448 and 451 of the Companies Act could be taken on a private complaint in view of Section 212(6) of the Companies Act.Analysis: Section 448 defines the offence of false statements and expressly provides that a person so offending 'shall be liable under Section 447'; Section 447 prescribes punishment for fraud. The substitution in Section 212(6) referring to 'offence covered under Section 447' confines the statutory bar on taking cognizance and the stringent bail regime to offences that invoke Section 447 (fraud) and those offences which, when proved, render the accused liable under Section 447. Given the inextricable link between Section 448 and Section 447, taking cognizance of Section 448 on a private complaint without meeting the second proviso requirements of Section 212(6) would subvert the legislative safeguard intended to prevent frivolous private prosecutions alleging fraud. Section 451 (repeated default) similarly depends on the predicate offences and cannot be sustained where the requirement for cognizance under the proviso to Section 212(6) is not fulfilled.Conclusion: Cognizance of offences under Sections 448 and 451 could not be validly taken on a private complaint without compliance with the second proviso to Section 212(6); the complaint insofar as it alleges offences under Sections 448 and 451 is quashed.Issue (ii): Whether, if the Companies Act offences are quashed, the Special Court may still try the IPC offences under Section 436(2) of the Companies Act.Analysis: Section 436(2) permits a Special Court trying an offence under the Companies Act to also try offences under other laws in the same trial. That jurisdiction presupposes that the Special Court is trying an offence under the Companies Act. Where the Companies Act offences are quashed and the Special Court is not trying any Companies Act offence, the prerequisite for Section 436(2) is absent. Transfer to the appropriate court of territorial jurisdiction is required for continued adjudication of IPC offences.Conclusion: The Special Court cannot, by virtue of Section 436(2), continue to try the IPC offences once the Companies Act offences are quashed; the complaint insofar as it relates to IPC offences should be transferred to the appropriate territorial court for trial.Issue (iii): Whether continuation of criminal proceedings would amount to abuse of process warranting interference under Section 482 CrPC.Analysis: Pendency of civil or corporate proceedings between parties does not automatically render criminal proceedings an abuse of process. Allegations of criminality that are distinct in nature may require trial. Absent compelling circumstances of malafide or an established abuse, mere parallel civil litigation is not a ground for quashing criminal proceedings under Section 482.Conclusion: Continuation of the IPC proceedings does not amount to abuse of process; those proceedings are not quashed on that ground.Final Conclusion: The complaint and consequential proceedings are quashed insofar as they relate to Sections 448 and 451 of the Companies Act; proceedings in respect of IPC offences are not quashed but must be tried by the appropriate territorial court after transfer. The remedy under the Companies Act (including Section 213) remains available to the complainant.Ratio Decidendi: Where a Companies Act provision expressly makes liability dependent on Section 447 (fraud), that provision is an 'offence covered under Section 447' for the purposes of Section 212(6), and cognizance of such offence on a private complaint is barred unless the second proviso to Section 212(6) is satisfied.
TaxTMI 
TaxTMI 
