TaxTMI 
TaxTMI 
2008 (4) TMI 502
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....ies Act, 1956 having its registered office at 301-A and B, Govind Apart-ment, Shah Najaf Road, Lucknow, which was incorporated as a non-banking financial company. The object of the Company, amongst others, was to receive deposits from the shareholders, to lend money to its shareholders and to accept deposits from the members of the public through fixed deposits, etc. The petitioner contended that the Company, on account of the faulty policies of the Government and the Reserve Bank of India fell into a financial crunch and was not doing any business since January 1995 and that the petitioner had tendered his resignation on 1-8-1998 which was accepted by the Board of Directors and which was forwarded to the Registrar of the Companies. The petitioner alleged that certain complaints were filed by the members of the public, including a First Information Report against the Company and that certain petitions for winding up of the Company was also filed before the Company Court, Lucknow Bench of the Allahabad High Court wherein, the Official Liquidator was appointed as the Provisional Liquidator who had taken the charge of all the assets of the Company. The petitioner further alleged that ....
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....lication could not be filed for the quashing of the criminal proceedings. The respondents submitted that the Company Law Board had issued orders dated 31-7-2000 and 16-5-2002 directing the Company and its Directors to refund the deposits which they had received from their shareholders and from the public at large. Since these orders were not complied with, the Reserve Bank of India, in exercise of its powers under section 58B read with section 58C of the Reserve Bank of India Act, for violation of the Company Law Boards' orders dated 31-7- 2000 and 16-5-2002, filed a complaint case before the Special Judicial Magistrate, Lucknow, in which cognizance was taken by the Court by its order dated 30-9-2004. The bank submitted that criminal proceedings are outside the purview of the proceedings under section 446 of the Companies Act and that no leave was required to be obtained from the Company Court. Further, the mere fact that the petitioners have resigned as Directors of the Company, did not absolve their liability of the acts which they had committed during their tenure as the Directors of the Company. The respondents further submitted that the criminal complaint was filed in public i....
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....ined in this sub-section shall render any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the same was committed with the consent or connivance of or is attributable to any neglect on the part of, any director, manager, secretary, or other officer or employee of the company, such director, manager, secretary, other officer or employee shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Explanation 1.-Any offence punishable under this Act shall be deemed to have been committed at the place where the registered office or the principal place of business, as the case may be, in India of the company is situated. Explanation 2.-For the purpose of this section,- (a )'a company' means any body corporate and includes a corporation, a non-banking institution, a firm, a co-operative society or other association of individua....
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....and its Directors. The submission of the counsel for the petitioner that the initiation of the criminal proceedings was wholly illegal and without any jurisdiction is wholly erroneous. 9. This takes us to the next question as to whether the petition filed by the petitioners under sections 446, 633(2) read with Rule 9 of the Company Court Rules was maintainable or not? Under the Companies Act, only certain petitions, as provided under Rule 11 of the Company Court Rules, can be filed. For facility, Rule 11 of the Company Court Rules is quoted hereinunder:- "11. (a) Petitions.-The following applications shall be made by petition: (1)Applications under section 17 to confirm an alteration of the memorandum of association. (2)Applications under section 79 to sanction issue of shares at a discount. (3)Applications under section 101 to confirm reduction of share capital. (4)Applications under section 107 to cancel any variation of the rights of holders of any class of shares. (5)Applications under section 141 for rectification of the register of charges. (6)Applications under section 155 for rectification of the Register of Members. (7)Applications under section ....
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....d of settlement. (23)Applications under section 633(2) by an officer of a company for relief. (b) Judge's summons. - All other applications under the Act or under these rules shall be made by a Judge's summons, returnable to the judge sitting in Court or in Chambers as hereinafter provided." 10. From the aforesaid, it is clear, that no petition can be filed under section 446 of the Companies Act. Section 446 is only an enabling provision and an interlocutory application could only be filed in a pending matter before the Court seeking leave of the Court to file a suit or other legal proceedings against the Company. If any suit or proceedings is required to be instituted or to be continued with, then leave of the Court is necessary. Section 446 of the Companies Act however does not prohibit taking actions against the Directors and officers or servants of the Company. This provision cannot be invoked for the quashing of the criminal complaint. 11. For facility, section 446 of the Companies Act is quoted hereinbelow:- " 446. Suits stayed on winding up order.-(1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator,....
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...."An application seeking leave to proceed, in respect of a pending suit or proceeding (filed before the order of winding up) is not an application for enforcement of any claim or right. It does not seek any 'relief' or 'remedy' with reference to any claim or right or obligation or liability. It is an application which is interlocutory in nature. An interlocutory application is not subject to any period of limitation, unless otherwise specifically provided by law. We are conscious of the fact that an application under section 446(1) seeking leave to proceed with the suit/proceeding, is not filed as an 'interlocutory application' in the suit/proceeding before the Court where such suit/proceeding is pending. But an interlocutory application is nothing but an application in the course of an action. It is a request made to a Court, for its interference, in a matter arising in the progress of a proceeding. Therefore, in a broad sense, the application under section 446(1) filed before the Company Court seeking leave to proceed with a pending suit or proceeding is an 'interlocutory application' with reference to the pending suit/proceeding. Article 137 is intended to apply to applications f....
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....inance Ltd. v. Kanosika Laboratories Ltd. (In Liquidation) [1998] 94 Comp. Cas. (AP) 127^2 , it was held, that the words suit and other legal proceedings used in section 446 of the Companies Act does not embrace the proceedings like those under section 138 of the Negotiable Instruments Act. The Court held that the purpose of section 446 of the Companies Act was to safeguard the assets and the property of the Company which had been wound up under the orders of the Court and if anything had to be realised from the assets of the Company, the same deserved to be done under the permission of the court only and that criminal proceedings under section 138 of the Negotiable Instruments Act had no bearing whatsoever for the purpose for which section 446 had been enacted. 18. Insofar as section 633 of the Companies Act is concerned, the relief can only be granted to the Directors only in the case of the proceedings arising under the Companies Act and not under any other Act. In Rabindra Chamria v. Registrar of Companies, West Bengal 1992 Supp (2) SCC 10, the Supreme Court held- "The expression 'any proceeding' occurring in section 633 cannot be read out of context and treated in isolat....