Full Judgment Text
®
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
RD
DATED THIS THE 23 DAY OF MARCH, 2021
B E F O R E
THE HON’BLE Dr.JUSTICE H.B.PRABHAKARA SASTRY
CRIMINAL PETITION No.1159 OF 2012
BETWEEN:
1 . SRI AVINASH SUBRAMANYAM
TH
NO. 37, 30 CROSS,
TH
EAST END ROAD, JAYANAGAR 9 BLOCK
BANGALORE – 560 069.
2 . SMT. VANI SHARMA
ND
NO.222, "APARNA" 32 A CROSS
RD
3 MAIN, VII BLOCK, JAYANAGAR,
BANGALORE – 560 082.
...PETITIONERS
(BY SRI ADITYA SONDHI SR. ADVOCATE FOR
SMT. NIDHISHREE B.V., ADVOCATE)
AND:
THE OFFICIAL LIQUIDATOR OF
M/S. SHIMBU IMPORTS AND EXPORTS(P) LTD (IN LIQN)
ATTACHED TO HIGH COURT OF KARNATAKA.
...RESPONDENT
(BY SRI K.S. MAHADEVAN, ADVOCATE)
THIS CRIMINAL PETITION IS FILED U/S.482 CR.P.C. PRAYING
TO SET ASIDE THE ORDER DATED 18.11.2011 PASSED BY SPECIAL
ECONOMIC OFFENCES COURT, BENGALURU IN C.C. NO.545/2007
CRL.P. NO.1159/2012
2
(ANNEXURE-A) AND QUASH THE CRIMINAL PROCEEDINGS IN C.C.
NO.545/2007 AGAINST THE PETITIONERS PENDING BEFORE THE
SPECIAL ECONOMIC OFFENCES COURT, BENGALURU AND GRANT
SUCH OTHER RELIEF AS THE COURT DEEMS FIT IN THE INTEREST OF
JUSTICE.
THIS CRIMINAL PETITION HAVING BEEN HEARD THROUGH
PHYSICAL HEARING/VIDEO CONFERENCING HEARING AND RESERVED
ON 16.03.2021, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS
DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The present respondent filed a complaint under C.C.
No.545/2007 before the learned Special Court ( Economic
Offences), Bengaluru (for brevity, ‘Trial Court’) under Section
538(1)(c) of the Companies Act, 1956 (for brevity ‘the Act’) read
with Rule 9 of the Companies (Court) Rules, 1959 (for brevity,
‘1959 Rules’) and Section 200 of Code of Criminal Procedure (for
brevity, ‘Cr.P.C.’) against the present petitioners alleging failure
on the part of the petitioners in handing over the books and
records of M/s. Shimbu Imports and Exports (P) Ltd. (in
liquidation) punishable for default under Section 538(1)(c) of the
Act.
2. The present petitioners filed an application under
Section 245 of the Cr.P.C. read with Section 633 of the Act
CRL.P. NO.1159/2012
3
seeking their discharge from the offence punishable under
Section 538(1)(c) of the Act.
3. The Trial Court by its impugned order dated
18.11.2011 kept open the said application and posted the case
for recording of evidence stating that the same would be in
consonance with the provisions of Section 244 of Cr.P.C. and
other provisions under Chapter XX of Cr.P.C. and the Act and the
1959 Rules.
4. Aggrieved by the same, the accused Nos.1 and 2 in
the Trial Court have preferred the present petition. The
respondent is being represented by his learned counsel.
5. Heard the arguments of learned Senior Counsel for
the petitioners and also of the learned counsel for the
respondent.
Perused the materials placed before this Court.
6. The only point that arises for my consideration is
whether the impugned Order of the Trial Court warrants
interference by exercise of power under Section 482 of Cr.P.C.
by this Court?
CRL.P. NO.1159/2012
4
7. Learned Senior Counsel appearing for the petitioners
in his arguments submitted that this Court in Co.P.85/1998
passed an Order on 19.03.1999 for winding up of the company
M/s. Shimbhu Imports and Exports (P) Ltd. The present
petitioners are the Directors of the said company. All the books
and registers sought for by the Official Liquidator who has taken
over the possession of the assets of the company have been
submitted to him along with the letter dated 11.07.2003 of the
petitioner No.1. A copy of the said letter with the details of the
books and registers handed over to the Official Liquidator are
produced at Annexure-C. 618 books were handed over to the
Official Liquidator. However, without considering the said aspect,
the proceeding under Section 538(1)(c) of the Act has been
initiated. As such, the same deserves to be set aside.
8. Learned Senior Counsel more vehemently submitted
that the Official Liquidator has not obtained the sanction of the
Court for instituting the present criminal petition under challenge
against the present petitioners which is mandatory under Section
457(1)(a) of the Act, as such, the entire proceeding is vitiated
and deserves to be quashed. In his support, he relied upon the
Judgment of the Hon’ble Apex Court in Jaswantrai Manilal
CRL.P. NO.1159/2012
5
Akhaney Vs. State of Bombay reported in (1956) 26 Comp
Cas 340 and also the Judgment of the Andhra Pradesh High
Court in Official Liquidator Vs. T.J. Swamy and Others reported
in (1992) 73 Comp Cas 583. He further submitted that the
handing over of books of accounts has been acknowledged and
the same has been taken judicial notice of in another action upon
a company application No.1196/1999 in Co.P. 85/1998 by
this Court on 09.11.2006, a copy of which is produced at
Annexure-E. He further submitted that even if this Court comes
to a conclusion that the Directors / petitioners have committed a
default, the same is unintentional, bona fide, as such, they may
be excused under Section 633 of the Act.
9. Learned Official Liquidator in his very brief argument
submitted that for initiation of any action under Section
538(1)(c) of the Act for violation of Section 457(1) of the Act, no
sanction is required. In his support, he relied upon an Order
dated 19.01.2001 passed by the Delhi High Court in D.K. Kapur
Vs. Reserve Bank of India and Others reported in 90
(2001) DLT 127.
10. It is an admitted fact that the present petitioners
were the Directors of M/s. Shimbhu Imports and Exports Pvt.
CRL.P. NO.1159/2012
6
Ltd. (under liquidation). The said company was ordered to be
wound up by this Court in Co.P.85/1998 under the Order dated
19.03.1999. Admittedly the respondent who is the Official
Liquidator has taken over the possession of the assets of the
company. It is also not in dispute that the said Official Liquidator
issued notices to the ex-Directors i.e. the petitioners calling upon
them to handover the books of accounts of the company.
According to the respondent (Official Liquidator), neither of the
petitioners handed over the books of accounts of the company to
him, as such, his Office has got issued a notice under Section
538(1)(c) of the Act to the petitioners (ex-Directors) to which
the petitioner No.1 is said to have replied but the demand for
handing over of the books of accounts was not complied with.
With this, seeking a direction to the present petitioners to
disclose all the books of accounts of the company (under
liquidation) and to handover the same to the Official Liquidator
and also seeking to punish them for default under Section
538(1)(c) of the Act, the respondent (Official Liquidator) filed a
complaint under Section 200 of Cr.P.C. read with Section
538(1)(c) of the Companies Act, 1956 and Rule 9 of the
CRL.P. NO.1159/2012
7
Companies Court Rules, 1959 against the present petitioners in
the Trial Court in C.C. No.545/2007 as noted above.
11. Section 538(1)(c) of the Act reads as below:
“ 538. Offences by officers of companies in liquidation:
(1) If any person, being a past or present officer of a company,
which, at the time of the commission of the alleged offence, is
being wound up, whether by the Tribunal or voluntarily, or which
is subsequently ordered to be wound up by the Tribunal or which
subsequently passes a resolution for voluntary winding up, -
(a) xxxx (b) xxxx
(c) does not deliver up to the liquidator, or as he directs, all such
books and papers of the company as are in his custody or under his
control and which he is required by law to deliver up;
...... shall be punishable ..... with imprisonment for a term which
may extend to two years or with fine, or with both.....”
12. The main contention of the petitioners is, to institute
any criminal proceeding for the alleged violation of Section
538(1)(c) of the Act, though the Official Liquidator has power
under Section 457(1)(a) of the Act, but a prior sanction of the
Tribunal is mandatory which in the instant case the Official
Liquidator has not obtained, as such, the entire proceeding is
vitiated .
CRL.P. NO.1159/2012
8
13. In Jaswantrai Manilal Akhaney’s case (supra), the
Hon’ble Apex Court while dealing with Section 179 of Indian
Companies Act, 1913 (which is akin to Section 457 of the Act),
discussed the question as to whether leave of the Court was
necessary for the Liquidator to go against Managing Director of
the company which is under liquidation? In that regard, at page
Nos.354 and 355 of its Judgment, Hon’ble Apex Court was
pleased to observe as below:
“It now remains to deal with certain objections relating to the
illegality or irregularity in the procedure followed in the trial of this
case. It was argued that this prosecution was incompetent for the
reason that no sanction of the Company Judge had been obtained
under section 179 of the Indian Companies Act. The relevant portion
of section 179 is as follows:-
"The official liquidator shall have power, with the sanction of the
Court to do the following things:
(a) to institute or defend any suit or prosecution, or other legal
proceeding, civil or criminal, in the name and on behalf of the
company;...................."
In terms the section lays down the powers of the official liquidator.
Such a liquidator has to function under the directions of the court
which is in charge of the liquidation proceedings. One of his powers
is to institute prosecutions in the name and on behalf of the company
under liquidation with the sanction of the court. This section does not
purport to impose any limitations on the powers of a criminal court to
CRL.P. NO.1159/2012
9
entertain a criminal prosecution launched in the ordinary course
under the provisions of the Code of Criminal Procedure. Where a
prosecution has to be launched in the name of, or on behalf of, the
company, it naturally becomes the concern of the Judge to see
whether or not it was worthwhile to incur expenses on behalf of the
company and, therefore, the section requires the sanction of the
Judge before the liquidator can undertake the prosecution or defence
in the name of and on behalf of the company....”
14. In Official Liquidator’s case(supra), the Andhra
Pradesh High Court with respect to obtaining the prior sanction
of the Court for instituting any proceeding by the Official
Liquidator, was pleased to hold that for an application under
Section 543(1) of the Companies Act, 1956, the sanction
contemplated under Section 457 of the Act is implied because
the application is being presented to the company court itself;
express sanction under Section 457 is required where
applications are to be made to forums other than the company
court.
15. Thus the above two Judgments make it very clear
that where a prosecution is to be launched in the name of or on
behalf of the company, the Official Liquidator though has got
power to launch such a proceeding under Section 457 of the Act
but before launching he should obtain the sanction of the
CRL.P. NO.1159/2012
10
Tribunal (prior to amendment of the year 2003 it was “the
court”).
16. Admittedly in the instant case, the initiation of
proceeding is not before the Company Court in which the winding
up proceeding is said to have been pending. On the other hand,
it is in a different forum i.e. the Trial Court. Admittedly in the
instant case, the Official Liquidator has not obtained the sanction
of the Tribunal (then “Court”) in the matter.
In D.K. Kapur’s case relied upon by the learned counsel
for the respondent, in para 12 of its Order, the Delhi High Court
observed as below:
12. Mere look at the aforesaid provisions would show that on the one
hand, in Section 457 of the Act, the legislature has empowered the
liquidator to institute or defend any 'suit' or 'prosecution' or 'other
legal proceedings' civil or criminal in the name and on behalf of
company after permission from the court; and by Section 454(5A) of
the Act the legislature has empowered the Company Court itself to
take cognizance of the offence under sub section (5) of section 454 of
the Act and to try such offenders as per the procedure provided for
trial of summons cases under the Code of Criminal Procedure, 1974;
but on the other hand in sections 442 and 446 of the Act the
legislature has used only the expression "suit or other legal
proceedings". The words "prosecution" or "criminal case" are
CRL.P. NO.1159/2012
11
conspicuously missing in these sections. It appears quite logical as
purpose and object of sections 442 and 446 of the Act is to enable the
Company Court to oversee the affairs of the company and to avoid
wasteful expenditure. Therefore the intention of the legislature under
these sections does not appear to provide jurisdiction to the Company
Court over criminal proceedings either against the company or
against its directors. Wherever legislature thought it necessary to
provide such jurisdiction it has used the appropriate expressions.”
It is relying upon the above portion of the order, learned
counsel for the respondent contended that no sanction was
required to be obtained by the Official Liquidator before initiating
action against the present petitioners.
17. The said argument of the learned counsel for the
respondent is not acceptable for the reason that as evident in
para 7 of the very same Order in D.K. Kapur’s case (supra), the
question before the Court was whether the expression “Suit or
other legal proceedings” in Section 446(1) and the expression
“suit or proceedings” in Section 446 (2) of Chapter II in Part VII
of the Companies Act, 1956 encompasses criminal proceedings
against the company or not?
18. Admittedly the exercise of the power by the
respondent / Liquidator in the instant case in initiating action
CRL.P. NO.1159/2012
12
against the present petitioners under Section 538(1)(c) of the
Act was under Section 457 of the Act but not under Section 446
of the Act. Sections 446 and 457 of the Act are with respect to
two different concepts. Section 446 is about continuation of the
proceeding against the company whereas Section 457(1)(a)
deals with instituting or defending any suit, prosecution or other
legal proceeding, civil or criminal in the name of and on behalf of
the company. Undisputedly in the instant case, the respondent
has instituted a criminal proceeding against the ex-Directors of
the company under liquidation. As such, it is institution of a
criminal proceeding on behalf of the company by the Official
Liquidator against the ex-Directors of the company.
19. Incidentally in D.K. Kapoor’s case, the very same
Delhi High Court in para 12 of its Order has relying upon
Jaswantrai Manilal Akhaney’s
case (supra), distinguished the
same with respect to Section 446 of the Act. However, in the
said case, nowhere it mentions that for institution of a
proceeding, civil or criminal in the name of and on behalf of the
company under liquidation, sanction of the Courts is not
required. On the other hand, in its Order at para 17, by relying
upon Jaswantrai Manilal Akhaney’s case (supra) it has shown at
CRL.P. NO.1159/2012
13
para 18 that such a sanction is necessary but it is not required
for a proceeding under Section 446 of the Act .
In the instant case, admittedly the proceeding initiated by
the Official Liquidator since not being one under Section 446 of
the Act but it is under Section 457(1)(a) of the Act, the
respondent / Official Liquidator ought to have obtained sanction
as mandated and only then proceeded further. Since such a
sanction has admittedly not been obtained, the entire
proceedings initiated against the petitioners in the Trial Court
stands vitiated. Therefore, without going into the aspect of the
entitlement of the petitioners for any relief under Section 633 of
the Act, suffice it to say that the entire criminal proceeding
pending in the Trial Court deserves to be quashed, however,
reserving liberty to the petitioner therein (respondent herein) to
proceed afresh if it feels like and in accordance with law.
Accordingly, I proceed to pass the following:
ORDER
The criminal petition is allowed.
The entire proceeding in C.C. No.545/2007 pending on the
Court of learned Special Court ( Economic Offences), Bengaluru,
CRL.P. NO.1159/2012
14
against the present petitioners stands quashed. However, the
petitioner therein (respondent herein) is at liberty to initiate the
proceeding for the alleged violation of Section 538(1)(c) of the
Companies Act, 1956, if it desires so, in accordance with law and
after duly obtaining the sanction of the Court as required under
Section 457(1)(a) of the Companies Act, 1956.
Registry to transmit a copy of this Order to the concerned
Trial Court.
Sd/-
JUDGE
sac*
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
RD
DATED THIS THE 23 DAY OF MARCH, 2021
B E F O R E
THE HON’BLE Dr.JUSTICE H.B.PRABHAKARA SASTRY
CRIMINAL PETITION No.1159 OF 2012
BETWEEN:
1 . SRI AVINASH SUBRAMANYAM
TH
NO. 37, 30 CROSS,
TH
EAST END ROAD, JAYANAGAR 9 BLOCK
BANGALORE – 560 069.
2 . SMT. VANI SHARMA
ND
NO.222, "APARNA" 32 A CROSS
RD
3 MAIN, VII BLOCK, JAYANAGAR,
BANGALORE – 560 082.
...PETITIONERS
(BY SRI ADITYA SONDHI SR. ADVOCATE FOR
SMT. NIDHISHREE B.V., ADVOCATE)
AND:
THE OFFICIAL LIQUIDATOR OF
M/S. SHIMBU IMPORTS AND EXPORTS(P) LTD (IN LIQN)
ATTACHED TO HIGH COURT OF KARNATAKA.
...RESPONDENT
(BY SRI K.S. MAHADEVAN, ADVOCATE)
THIS CRIMINAL PETITION IS FILED U/S.482 CR.P.C. PRAYING
TO SET ASIDE THE ORDER DATED 18.11.2011 PASSED BY SPECIAL
ECONOMIC OFFENCES COURT, BENGALURU IN C.C. NO.545/2007
CRL.P. NO.1159/2012
2
(ANNEXURE-A) AND QUASH THE CRIMINAL PROCEEDINGS IN C.C.
NO.545/2007 AGAINST THE PETITIONERS PENDING BEFORE THE
SPECIAL ECONOMIC OFFENCES COURT, BENGALURU AND GRANT
SUCH OTHER RELIEF AS THE COURT DEEMS FIT IN THE INTEREST OF
JUSTICE.
THIS CRIMINAL PETITION HAVING BEEN HEARD THROUGH
PHYSICAL HEARING/VIDEO CONFERENCING HEARING AND RESERVED
ON 16.03.2021, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS
DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The present respondent filed a complaint under C.C.
No.545/2007 before the learned Special Court ( Economic
Offences), Bengaluru (for brevity, ‘Trial Court’) under Section
538(1)(c) of the Companies Act, 1956 (for brevity ‘the Act’) read
with Rule 9 of the Companies (Court) Rules, 1959 (for brevity,
‘1959 Rules’) and Section 200 of Code of Criminal Procedure (for
brevity, ‘Cr.P.C.’) against the present petitioners alleging failure
on the part of the petitioners in handing over the books and
records of M/s. Shimbu Imports and Exports (P) Ltd. (in
liquidation) punishable for default under Section 538(1)(c) of the
Act.
2. The present petitioners filed an application under
Section 245 of the Cr.P.C. read with Section 633 of the Act
CRL.P. NO.1159/2012
3
seeking their discharge from the offence punishable under
Section 538(1)(c) of the Act.
3. The Trial Court by its impugned order dated
18.11.2011 kept open the said application and posted the case
for recording of evidence stating that the same would be in
consonance with the provisions of Section 244 of Cr.P.C. and
other provisions under Chapter XX of Cr.P.C. and the Act and the
1959 Rules.
4. Aggrieved by the same, the accused Nos.1 and 2 in
the Trial Court have preferred the present petition. The
respondent is being represented by his learned counsel.
5. Heard the arguments of learned Senior Counsel for
the petitioners and also of the learned counsel for the
respondent.
Perused the materials placed before this Court.
6. The only point that arises for my consideration is
whether the impugned Order of the Trial Court warrants
interference by exercise of power under Section 482 of Cr.P.C.
by this Court?
CRL.P. NO.1159/2012
4
7. Learned Senior Counsel appearing for the petitioners
in his arguments submitted that this Court in Co.P.85/1998
passed an Order on 19.03.1999 for winding up of the company
M/s. Shimbhu Imports and Exports (P) Ltd. The present
petitioners are the Directors of the said company. All the books
and registers sought for by the Official Liquidator who has taken
over the possession of the assets of the company have been
submitted to him along with the letter dated 11.07.2003 of the
petitioner No.1. A copy of the said letter with the details of the
books and registers handed over to the Official Liquidator are
produced at Annexure-C. 618 books were handed over to the
Official Liquidator. However, without considering the said aspect,
the proceeding under Section 538(1)(c) of the Act has been
initiated. As such, the same deserves to be set aside.
8. Learned Senior Counsel more vehemently submitted
that the Official Liquidator has not obtained the sanction of the
Court for instituting the present criminal petition under challenge
against the present petitioners which is mandatory under Section
457(1)(a) of the Act, as such, the entire proceeding is vitiated
and deserves to be quashed. In his support, he relied upon the
Judgment of the Hon’ble Apex Court in Jaswantrai Manilal
CRL.P. NO.1159/2012
5
Akhaney Vs. State of Bombay reported in (1956) 26 Comp
Cas 340 and also the Judgment of the Andhra Pradesh High
Court in Official Liquidator Vs. T.J. Swamy and Others reported
in (1992) 73 Comp Cas 583. He further submitted that the
handing over of books of accounts has been acknowledged and
the same has been taken judicial notice of in another action upon
a company application No.1196/1999 in Co.P. 85/1998 by
this Court on 09.11.2006, a copy of which is produced at
Annexure-E. He further submitted that even if this Court comes
to a conclusion that the Directors / petitioners have committed a
default, the same is unintentional, bona fide, as such, they may
be excused under Section 633 of the Act.
9. Learned Official Liquidator in his very brief argument
submitted that for initiation of any action under Section
538(1)(c) of the Act for violation of Section 457(1) of the Act, no
sanction is required. In his support, he relied upon an Order
dated 19.01.2001 passed by the Delhi High Court in D.K. Kapur
Vs. Reserve Bank of India and Others reported in 90
(2001) DLT 127.
10. It is an admitted fact that the present petitioners
were the Directors of M/s. Shimbhu Imports and Exports Pvt.
CRL.P. NO.1159/2012
6
Ltd. (under liquidation). The said company was ordered to be
wound up by this Court in Co.P.85/1998 under the Order dated
19.03.1999. Admittedly the respondent who is the Official
Liquidator has taken over the possession of the assets of the
company. It is also not in dispute that the said Official Liquidator
issued notices to the ex-Directors i.e. the petitioners calling upon
them to handover the books of accounts of the company.
According to the respondent (Official Liquidator), neither of the
petitioners handed over the books of accounts of the company to
him, as such, his Office has got issued a notice under Section
538(1)(c) of the Act to the petitioners (ex-Directors) to which
the petitioner No.1 is said to have replied but the demand for
handing over of the books of accounts was not complied with.
With this, seeking a direction to the present petitioners to
disclose all the books of accounts of the company (under
liquidation) and to handover the same to the Official Liquidator
and also seeking to punish them for default under Section
538(1)(c) of the Act, the respondent (Official Liquidator) filed a
complaint under Section 200 of Cr.P.C. read with Section
538(1)(c) of the Companies Act, 1956 and Rule 9 of the
CRL.P. NO.1159/2012
7
Companies Court Rules, 1959 against the present petitioners in
the Trial Court in C.C. No.545/2007 as noted above.
11. Section 538(1)(c) of the Act reads as below:
“ 538. Offences by officers of companies in liquidation:
(1) If any person, being a past or present officer of a company,
which, at the time of the commission of the alleged offence, is
being wound up, whether by the Tribunal or voluntarily, or which
is subsequently ordered to be wound up by the Tribunal or which
subsequently passes a resolution for voluntary winding up, -
(a) xxxx (b) xxxx
(c) does not deliver up to the liquidator, or as he directs, all such
books and papers of the company as are in his custody or under his
control and which he is required by law to deliver up;
...... shall be punishable ..... with imprisonment for a term which
may extend to two years or with fine, or with both.....”
12. The main contention of the petitioners is, to institute
any criminal proceeding for the alleged violation of Section
538(1)(c) of the Act, though the Official Liquidator has power
under Section 457(1)(a) of the Act, but a prior sanction of the
Tribunal is mandatory which in the instant case the Official
Liquidator has not obtained, as such, the entire proceeding is
vitiated .
CRL.P. NO.1159/2012
8
13. In Jaswantrai Manilal Akhaney’s case (supra), the
Hon’ble Apex Court while dealing with Section 179 of Indian
Companies Act, 1913 (which is akin to Section 457 of the Act),
discussed the question as to whether leave of the Court was
necessary for the Liquidator to go against Managing Director of
the company which is under liquidation? In that regard, at page
Nos.354 and 355 of its Judgment, Hon’ble Apex Court was
pleased to observe as below:
“It now remains to deal with certain objections relating to the
illegality or irregularity in the procedure followed in the trial of this
case. It was argued that this prosecution was incompetent for the
reason that no sanction of the Company Judge had been obtained
under section 179 of the Indian Companies Act. The relevant portion
of section 179 is as follows:-
"The official liquidator shall have power, with the sanction of the
Court to do the following things:
(a) to institute or defend any suit or prosecution, or other legal
proceeding, civil or criminal, in the name and on behalf of the
company;...................."
In terms the section lays down the powers of the official liquidator.
Such a liquidator has to function under the directions of the court
which is in charge of the liquidation proceedings. One of his powers
is to institute prosecutions in the name and on behalf of the company
under liquidation with the sanction of the court. This section does not
purport to impose any limitations on the powers of a criminal court to
CRL.P. NO.1159/2012
9
entertain a criminal prosecution launched in the ordinary course
under the provisions of the Code of Criminal Procedure. Where a
prosecution has to be launched in the name of, or on behalf of, the
company, it naturally becomes the concern of the Judge to see
whether or not it was worthwhile to incur expenses on behalf of the
company and, therefore, the section requires the sanction of the
Judge before the liquidator can undertake the prosecution or defence
in the name of and on behalf of the company....”
14. In Official Liquidator’s case(supra), the Andhra
Pradesh High Court with respect to obtaining the prior sanction
of the Court for instituting any proceeding by the Official
Liquidator, was pleased to hold that for an application under
Section 543(1) of the Companies Act, 1956, the sanction
contemplated under Section 457 of the Act is implied because
the application is being presented to the company court itself;
express sanction under Section 457 is required where
applications are to be made to forums other than the company
court.
15. Thus the above two Judgments make it very clear
that where a prosecution is to be launched in the name of or on
behalf of the company, the Official Liquidator though has got
power to launch such a proceeding under Section 457 of the Act
but before launching he should obtain the sanction of the
CRL.P. NO.1159/2012
10
Tribunal (prior to amendment of the year 2003 it was “the
court”).
16. Admittedly in the instant case, the initiation of
proceeding is not before the Company Court in which the winding
up proceeding is said to have been pending. On the other hand,
it is in a different forum i.e. the Trial Court. Admittedly in the
instant case, the Official Liquidator has not obtained the sanction
of the Tribunal (then “Court”) in the matter.
In D.K. Kapur’s case relied upon by the learned counsel
for the respondent, in para 12 of its Order, the Delhi High Court
observed as below:
12. Mere look at the aforesaid provisions would show that on the one
hand, in Section 457 of the Act, the legislature has empowered the
liquidator to institute or defend any 'suit' or 'prosecution' or 'other
legal proceedings' civil or criminal in the name and on behalf of
company after permission from the court; and by Section 454(5A) of
the Act the legislature has empowered the Company Court itself to
take cognizance of the offence under sub section (5) of section 454 of
the Act and to try such offenders as per the procedure provided for
trial of summons cases under the Code of Criminal Procedure, 1974;
but on the other hand in sections 442 and 446 of the Act the
legislature has used only the expression "suit or other legal
proceedings". The words "prosecution" or "criminal case" are
CRL.P. NO.1159/2012
11
conspicuously missing in these sections. It appears quite logical as
purpose and object of sections 442 and 446 of the Act is to enable the
Company Court to oversee the affairs of the company and to avoid
wasteful expenditure. Therefore the intention of the legislature under
these sections does not appear to provide jurisdiction to the Company
Court over criminal proceedings either against the company or
against its directors. Wherever legislature thought it necessary to
provide such jurisdiction it has used the appropriate expressions.”
It is relying upon the above portion of the order, learned
counsel for the respondent contended that no sanction was
required to be obtained by the Official Liquidator before initiating
action against the present petitioners.
17. The said argument of the learned counsel for the
respondent is not acceptable for the reason that as evident in
para 7 of the very same Order in D.K. Kapur’s case (supra), the
question before the Court was whether the expression “Suit or
other legal proceedings” in Section 446(1) and the expression
“suit or proceedings” in Section 446 (2) of Chapter II in Part VII
of the Companies Act, 1956 encompasses criminal proceedings
against the company or not?
18. Admittedly the exercise of the power by the
respondent / Liquidator in the instant case in initiating action
CRL.P. NO.1159/2012
12
against the present petitioners under Section 538(1)(c) of the
Act was under Section 457 of the Act but not under Section 446
of the Act. Sections 446 and 457 of the Act are with respect to
two different concepts. Section 446 is about continuation of the
proceeding against the company whereas Section 457(1)(a)
deals with instituting or defending any suit, prosecution or other
legal proceeding, civil or criminal in the name of and on behalf of
the company. Undisputedly in the instant case, the respondent
has instituted a criminal proceeding against the ex-Directors of
the company under liquidation. As such, it is institution of a
criminal proceeding on behalf of the company by the Official
Liquidator against the ex-Directors of the company.
19. Incidentally in D.K. Kapoor’s case, the very same
Delhi High Court in para 12 of its Order has relying upon
Jaswantrai Manilal Akhaney’s
case (supra), distinguished the
same with respect to Section 446 of the Act. However, in the
said case, nowhere it mentions that for institution of a
proceeding, civil or criminal in the name of and on behalf of the
company under liquidation, sanction of the Courts is not
required. On the other hand, in its Order at para 17, by relying
upon Jaswantrai Manilal Akhaney’s case (supra) it has shown at
CRL.P. NO.1159/2012
13
para 18 that such a sanction is necessary but it is not required
for a proceeding under Section 446 of the Act .
In the instant case, admittedly the proceeding initiated by
the Official Liquidator since not being one under Section 446 of
the Act but it is under Section 457(1)(a) of the Act, the
respondent / Official Liquidator ought to have obtained sanction
as mandated and only then proceeded further. Since such a
sanction has admittedly not been obtained, the entire
proceedings initiated against the petitioners in the Trial Court
stands vitiated. Therefore, without going into the aspect of the
entitlement of the petitioners for any relief under Section 633 of
the Act, suffice it to say that the entire criminal proceeding
pending in the Trial Court deserves to be quashed, however,
reserving liberty to the petitioner therein (respondent herein) to
proceed afresh if it feels like and in accordance with law.
Accordingly, I proceed to pass the following:
ORDER
The criminal petition is allowed.
The entire proceeding in C.C. No.545/2007 pending on the
Court of learned Special Court ( Economic Offences), Bengaluru,
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14
against the present petitioners stands quashed. However, the
petitioner therein (respondent herein) is at liberty to initiate the
proceeding for the alleged violation of Section 538(1)(c) of the
Companies Act, 1956, if it desires so, in accordance with law and
after duly obtaining the sanction of the Court as required under
Section 457(1)(a) of the Companies Act, 1956.
Registry to transmit a copy of this Order to the concerned
Trial Court.
Sd/-
JUDGE
sac*