TaxTMI 
TaxTMI 
2010 (5) TMI 655
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....no application for second motion has been moved. 5. The applicant/company, in the meantime, has moved this Application No. 111313 of 2010 under section 391(6) of the Act for grant of stay of general nature staying all proceedings pending in various tribunals and forums for winding up, recoveries of debts and other proceedings regarding non-payment of amounts by the company, commencement or continuation of any suit or proceeding against the applicant-company or its directors, employees, officers and ex-employees in connection with the affairs of the applicant-company. The application is founded on the allegation that the applicant-company was a profit making company till the end of the financial year 31st March, 2008 but on account of unforeseen economic recession it has accumulated losses to the extent of Rs. 222,42,04,338.54 as per the added balance sheet for the period of 15 months ending 30th June, 2009. The applicant-company as such applied for acceptance of the above scheme. However, in the meantime, proceedings have been initiated by some of the creditors, namely : (i) Hong Kong & Sanghai Banking Corporation Ltd. ('HSBC') being Original Application No. 321 of 2009....
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....applicant-company is entitle to be given a chance to rehabilitate itself and, therefore, the court ought to exercise discretion in granting interim order as prayed for in its favour. 10. The provision of section 391(6) of the Act is very clear and unambiguous. It reads as under : "391. Power to compromise or make arrangements with creditors and members.-(6) The tribunal may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the tribunal thinks fit, until the application is finally dispose of." 11. The use of word 'may' in the above provision signifies the discretion available with the court and that it is not mandatory for the court to stay the commencement and continuation of the suit or proceeding as soon as an application under sections 391 and 394 of the Act is moved in each and every case, it empowers the court whenever an application has been made under section 391 of the Act to stay the commencement or continuation of any suit or proceeding against the company in exercise of its discretion. 12. The aforesaid provision takes within its sweep t....
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....therefore, such criminal proceedings can be commenced and continued notwithstanding pending consideration of a scheme for compromise or arrangement under section 391 of the Act. 16. A similar view was reiterated by his lordship of the Bombay High Court in reference to the case of Sharp Industries Ltd., In re [2005] 123 Comp. Cas. 60/60 SCL 297 (Bom.) and in interpreting the word "proceedings" occurring in section 391(6) of the Act held that it does not take within its ambit the criminal proceedings. In this case criminal proceedings under section 138 of the Negotiable Instruments Act were involved. 17. In context with section 446(1) of the Act the expression "suit or other legal proceedings" have been used. Learned Single Judge of the Delhi High Court in D.K. Kapur v. Reserve Bank of India [2001] 30 SCL 96 (Delhi) ruled that the above expression would not include within its ambit the proceedings relating to criminal prosecution. 18. The reliance by Sri Subrahmanyam upon the decision of learned Single Judge of Gujarat High Court on the case of Divya Vasundhara Financiers (P.) Ltd. & Harish C. Raskapoor v. Jaferbhai Mohmadbhai Chhatpur [1988] 2 GLR 1045 to the effect that ex....
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....t under consideration for rehabilitation of the company as the said proceedings are primarily for punishment and imposition of fine for infringement of the provisions of the Act. 22. The view taken by me above can easily be explained by means of an illustration. There may be a case where during the course of workers resentment an unfortunate incident takes place and one or more workers are killed and a first information report is lodged against the officers of the company and after investigation the matter is committed to the Sessions Trial. The question would be whether such a trial can be stayed in exercise of power under section 391(6) of the Act, if the company chooses and files an application for consideration of an arrangement for its rehabilitation. The answer would definitely be in a big 'no' as a proceeding of such a criminal nature would have no impact on the working of the company vis-a-vis its rehabilitation or any scheme for the purpose. 23. In this view of the matter, I am of the considered opinion that the expression "suit or proceeding" used in section 391(6) does not cover proceedings of criminal nature and the same are not liable to be stayed merely for the ....