TaxTMI 
TaxTMI 
1998 (6) TMI 469
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....egistered under the Companies Act, 1956 (hereinafter referred to as "the Companies Act"). In course of its business, respondent No. 1-company approached the petitioner and obtained a diesel generator on hire purchase agreement on February 28, 1994. As per agreement the cheques issued by the respondent-company towards various instalments, when presented by the petitioner-company, were returned dishonoured, because respondent No. 1-company had issued instructions to the banker to stop payment. The petitioner-company then instituted criminal complaints against the respondent No. 1-company. The complaints were against the company, as well its managing director under section 158 of the Negotiable Instruments Act, 1881, (hereinafter referred to a....
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....mpany court is necessary ? Before proceeding further, it would be necessary and convenient to extract the relevant portion of section 446 of the Companies Act, 1956. Section 446(1) of the Companies Act, 1956, runs as follows : "446. (1) When a winding up order has been made or the official liquidator has been appointed as a provisional liquidator, no suit or other legal proceeding shall be commenced, or, if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose." A careful reading of the provision will show that no suit or other legal proceedings, if pending by the date of the winding up order shall be proceeded with agai....
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....note and the purpose of the enactment, the expression "other legal proceedings" will have to be construed. The said words cannot be and ought not to be read out of total context or in isolation. It has to be considered, in my view, in the light of the penal provisions, otherwise the penal clauses under the various Acts would be ineffective by invoking section 446 of the Companies Act, 1956. I think that the operation of this section must be restricted to proceedings arising out of violations of the Companies Act, 1956, and not to proceedings for violation of provisions of other criminal statutes. Learned counsel on behalf of the official liquidator has stated that proceedings which are of criminal nature but arise out of the provisions unde....
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....s can become sterile. I do not think that it was the purpose of enacting section 446 of the Companies Act, 1956. The view which I am taking is considerably supported by a very speaking judgment given by the Kerala High Court in K.P. Devassy v. Official Liquidator [1997] 90 Comp Cas 438 . The court held that the words "legal proceedings" in section 446 of the Companies Act, 1956, did not apply to proceedings under sections 138 of the Negotiable Instruments Act, 1881. It was observed that no recovery of any amount covered by the dishonoured cheque is envisaged in a criminal case and, therefore, it is a purely personal act and does not fall under the provisions of section 446 of the Companies Act, 1956. The term "legal proceedings" fell ....
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....Instruments Act, 1881. A reading of the judgment shows that it has been presumed that section 446 of the Companies Act, 1956, applies to all legal proceedings. In the circumstances, the said judgment cannot be said to have laid down any law on the point. It may be stated that the term "other legal proceedings" has not been defined in the Companies Act, 1956. Hence, the said term has to be construed properly. An identical provision exists in section 17 of the Provincial Insolvency Act, 1920. The said section provides that after an adjudication order is made, no creditor shall commence any suit or "other legal proceedings" against the insolvent, so adjudicated, without leave of the court. The Bombay High Court in Emperor v. Mulshanher [....