TaxTMI 
TaxTMI 
2016 (5) TMI 520
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....itan Magistrate, 21st Court, Bandra, Mumbai, against Respondent Nos.2 and 3 for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, (for short "N.I. Act"). Respondent No.2 is the Company registered under the Companies Act, 1956, whereas, Respondent No.3 is its Director. Cognizance of the offence was taken by the learned Magistrate and the process was issued against, both, Respondent Nos.2 and 3, who appeared and pleaded not guilty, claiming to be tried. The Petitioner thereupon examined its Authorized Representative in support of its case. 3. At this stage, Respondent No.3 filed an application under Section 446(1) of the Companies Act, 1956, (for short "the Act"), inter alia, praying for a direction to the Petitioner to secure leave from the Hon'ble Gujarat High Court, as Respondent No.2-Company was ordered to be wound-up by the said High Court in Company Petition Nos.115 of 2001, 157 of 1997 and 245 of 1997. It was submitted that, in view of Section 446(1) of the Act, the complaint cannot be proceeded with till such time the Petitioner secures leave from the Hon'ble Gujarat High Court to proceed with the complaint. This application came to ....
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....ompanies Act is not applicable to proceeding under Section 138 of N.I. Act; and (ii) unreported decision dated 13th February 2007 in Suresh K. Jasani Vs. Mrinal Dyeing and Manufacturing Company Limited & Ors. in Criminal Revision Application No.245 of 1997 [Coram : J.H. Bhatia, J.], taking a view that Section 446(1) of Companies Act applies to proceedings under Section 138 of N.I. Act also. 6. The learned Single Judge of this High Court [Coram : F.I. Rebello, J.] in the matter of Firth (India) (Supra) was considering two Company Applications filed under the Companies Act, 1956. One was under Section 446(1) for leave to prosecute the company under liquidation in respect of the complaints filed under Section 138 of the N.I. Act and the other was under Section 442B of the Companies Act seeking stay of the proceedings filed against the company under Section 138 of the N.I. Act. Para No.3 of the said Judgment deals with the question of law, which was framed in the said decision, and the rival contentions noted thereon. The same reads as follows :- "3. The question of law which arises is 'whether the expression 'suit or other legal proceedings' in Section 446(1) and the e....
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....proceeding, which has some relevance with the functioning of the company, particularly about its civil liabilities or contractual liabilities. It is well known that basically the liability of the drawer towards the payee of the cheque is civil in nature. However, to inculcate confidence in the economy of the nation and the transactions entered into with the help of Negotiable Instruments, particularly the cheques, besides the civil liability, the drawer becomes also liable to be punished under Section 138 of the Negotiable Instruments Act if he fails to make payment within specified period after notice that the cheque has been dishonoured. In the present case, there is no doubt that the liability to make the payment was of the company, i.e., respondent no.1. The cheque was actually issued on behalf of the company, by respondent no.6 as director. In view of the failure of the company to make the payment, in spite of notice after the cheque was dishonoured, the complainant was required to file complaint under Section 138 of the Negotiable Instruments Act. Thus, it is clear that proceeding under Section 138 of the Negotiable Instruments Act arose out of civil liability of the company.....
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....n any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a) any suit or proceeding by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any application made under section 391 by or in respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or rise in course of the winding up of the company, whether such suit or proceeding has been instituted or is instituted or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960). (3) [***] (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court." 12. Thus, the scheme of Section 446 makes it clear that the main purpose or object behind Section 446 is that, in respect of a Company in winding-up or where proceedings in winding-up have b....
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....debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice. to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both : Provided that nothing contained in this section shall apply unless- (a) the cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course. of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and; (c) the drawer of such cheque fails to make the payment....
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....n (1) and the expression "legal proceeding" in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up court. The Income-Tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re-assessment of income-tax with which alone we are concerned in the present case. The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under Section 446 of the Act. The liquidation Court, in our opinion, cannot perform the functions of Income-Tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the Court. The orders made by the Income-tax Officers in the course of assessme....
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....those which are outside the purview of the winding up court and other courts of law and those which are within the exclusive jurisdiction of other statutory bodies may not come under the purview of s. 446. A proceeding for eviction not being a proceeding which can be appropriately dealt with by the winding up court, does not come under the category of "other legal proceeding" in s. 446(1) and, therefore, leave of the winding up court is not necessary for proceeding with a petition filed against a company in liquidation. A similar reasoning was adopted in B.V. John Vs. Coir Yarn and Textiles Ltd., [1960] 30 Comp Cas 162 (Ker), which related to proceedings under the Industrial Disputes Act. Raman Nayar J., as he then was, held that a suit or proceeding for which leave is necessary under s. 446(1) must be a suit or proceeding capable of being withdrawn and disposed of by the winding-up court." 21. In the case of Official Liquidator, Swaraj Motors (P.) Ltd. Vs. Income-Tax Officer, [1972] 42 Comp Cas 96, while considering 'whether leave under Section 446(1) of the Companies Act would be necessary to proceedings regarding reassessment and imposition of penalty un....
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....oceedings", therefore, as used in Section 446(1) of the Companies Act, has to be construed accordingly and not to be interpreted so liberally and widely so as to include each and every proceeding of whatsoever nature initiated against the Company, including even the criminal proceedings like for the offence under Section 138 of N.I. Act, which has got no bearing on the winding-up proceedings of the Company and are not concerned with, directly with the assets of the Company, but are mainly dealing with the penal and personal liability of the Directors of the Company. 25. The conflict involved in the case can also be looked into from another aspect 'as to whether the provisions of Section 138 of N.I. Act can override the provisions of Companies Act, as it is a very special provision incorporated in the Negotiable Instruments Act, though the Companies Act contains certain special provisions in order to safeguard the rights of the Company under liquidation ?' 26. In this respect, one can place reliance on the decision of the Hon'ble Supreme Court in Damji Valji Shah Vs. Life Insurance Corporation of India, [1965] 35 Comp Cas 755 (SC). In the said case the question before ....
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....he Companies Act. 29. Learned counsel for the Petitioner in this case has also relied upon the decision of Orkay Industries Limited & Ors. Vs. State of Maharashtra & Ors., 1998 (2) Mh.L.J. 910. The Division Bench of this Court, while dealing with the application of Section 446(1) of the Companies Act to proceeding under Section 138 of N.I. Act, has observed that, what was directly in issue in the case filed under Section 138 of the N.I. Act was the Company being liable for prosecution on dishonour of the cheques issued by its Directors. The commission of offence under Section 138 is not dependent on winding-up of the Company, but is dependent upon dishonour of cheque and non-payment of the amount within fifteen days from the receipt of the notice. The offence under Section 138 of N.I. Act is complete after the ingredients of Section 138 are satisfied and, therefore, mere filing of Petition for windingup of the Company would not result into staying of the said proceedings. Even when the order of winding-up is passed or the order is made appointing a provisional liquidator, it can have no effect under the proceedings under Section 138 of N.I. Act. 30. Thus, there is a long line....
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....er of the cheque in public interest. No civil liability or any liability against the assets of the drawer of the cheque is contemplated under S. 138 of the Negotiable Instruments Act. Moreover, the provisions of S. 446 of the Companies Act are not very wide so as to take in proceedings initiated against the Managing Director of the Company in respect of the acts done by him on behalf of the Company without making any personal liability against him. Section 138 has overriding effect against S. 446 of the Companies Act. Chapter XVII dealing with penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts consisting of Ss. 138 to 142 in incorporated in the Negotiable Instruments Act by the Central Act 66 of 1988 with effect from 1-4-1989. Those special provisions are enacted with the special and specific intention of safeguarding and sustaining the credibility of commercial transactions. Those provisions are incorporated in the Negotiable Instruments Act while the entire provisions of the Companies Act including S. 446 were in force. Therefore, it has to be presumed that the Parliament enacted those provisions fully aware of the provisions of ....