Full Judgment Text
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PETITIONER:
Dr. SAILENDRA NATH SINHA AND ANOTHER
Vs.
RESPONDENT:
JASODA DULAL ADHIKARI AND ANOTHER
DATE OF JUDGMENT:
11/09/1958
BENCH:
KAPUR, J.L.
BENCH:
KAPUR, J.L.
IMAM, SYED JAFFER
CITATION:
1959 AIR 51 1959 SCR 1263
CITATOR INFO :
D 1960 SC 576 (25)
ACT:
Official Liquidator-Powers of-Prosecution of Director of
Company-If direction of Court necessary-Court giving
direction, if bound to hear Director-Indian Companies Act,
1913 (VII Of 1913), ss. 179 and 237(1).
HEADNOTE:
The Official Liquidator got a complaint under ss. 120-B,
406, 467 and 477A, ’Indian Penal Code filed before the
Presidency Magistrate against the appellants one of whom was
a past director and the other the Managing Director of the
Bank of Commerce Ltd., which was in compulsory liquidation.
The appellants applied to the Presidency Magistrate for
dismissal of tile complaint on the ground that the Official
Liquidator was incompetent to prefer the complaint as there
was no sanction of the Company judge. This was dismissed.
The appellants then applied to the High Court for quashing
the criminal proceedings on the ground that the prosecution
was ab initio void because of the absence of a prior
direction judicially given by the High Court under S. 237(1)
of the Indian Companies Act. The High Court rejected the
application.
Held, that a direction of the Court under s. 237(1) of the
Indian Companies Act was not a condition precedent to the
prosecution of the appellants by the Official Liquidator.
In fact, a valid and proper direction had been given by the
Court under s. 237(1) to the Official Liquidator for the
prosecution of the appellants. In giving a direction under
this section the Court could act ex parte and it was not
necessary to give to the appellants any opportunity of being
heard. Section I79 Of the Companies Act deals with the
powers of liquidators to institute or defend legal
proceedings with the sanction of the Court and S. 239(1)
deals with the powers of the Court to give directions for
prosecution of delinquent directors, etc. In the present
case, the Court had made an order under s. I79 giving
liberty to the Official Liquidator to institute or defend
legal proceedings, and the Official Liquidator was entitled
to lodge the complaint against the appellants even without a
direction under S. 237(1).
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JUDGMENT:
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 28 of
1956.
Appeal by special leave from the judgment and order dated
June 21, 1954, of the Calcutta High Court in Criminal
Revision No. 811 of 1953.
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Ranadeb Chaudhury and P. K. Chatterjee, for the appellants.
B. Sen and P. K. Bose, for the respondents.
1958. September 11. The Judgment of the Court was
delivered by
KAPUR J.-This appeal by special leave raises a question of
interpretation of s. 237 of the Indian Companies Act.
Appellant No. 1 is One of the past directors of the Bank of
Commerce Ltd., now in liquidation and appellant No. 2 was
its Managing Director. The Bank was ordered to be wound up
by the High Court of Calcutta on August 7, 1950, and one G.
K. Dutt, Bar-at-law was appointed its Official Liquidator
but on September 7, 1950, the Official Receiver was
appointed in place of Dutt. On July 23, 1952, respondent
No. 1 filed in Court of the Presidency Magistrate a
complaint against the appellant under ss. 120B, 406, 467,
477A, Indian Penal Code and 182A of the Indian Companies Act
and stated that he was doing so under the authority of the
official liquidator and the official liquidator had obtained
the directions of the High Court to file the complaint. On
May 5, 1953, the appellant applied to the I-residency
Magistrate for dismissal of the complaint as being without
the sanction of the Company Judge and therefore the official
liquidator in his official capacity was incompetent to
prefer the complaint, being the creation of the statute he
could only act within the four corners of the statute. He
possessed only those powers which the statute conferred on
him. This application was dismissed by the Presidency
Magistrate on June 13, 1953.
The appellant then applied to the High Court for quashing
the criminal proceedings on the ground that the prosecution
was ab initio void because of the absence of prior direction
judicially given by the High Court under s. 237(1) of the
Indian Companies Act. The High Court found against the
appellants and discharged the rule. The learned Chief
Justice held that the provisions of s. 237(1) are no bar to
a prosecution by the liquidator; that under s. 237(1) there
is nothing in the nature of a judicial proceedings
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that it could not be said that the order was not a valid
direction under s. 237(1). He said:
" There can be no question in the present case that the
relevant facts were all placed before the Company Judge,
because they are all set out in the report of Adhikary and
the affidavits annexed there to to which the order expressly
refers and with reference to which the liberty to bring
legal proceedings was expressly given. In view of those
circumstances, it is impossible to say that the Company
Court had not before it all the facts on which the
prosecution is based or that it did not apply its mind to
the considerations relevant to section 237(1) ".
He also held that clause (a) of s. 179 empowers the
liquidator to institute or defend legal proceedings in the
name of the company and that it was expressly concerned with
the powers of’ the liquidator whereas s. 237 dealt with
the powers of the Court to give, directions. P. B. Mukherji
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J. gave a concurring judgment. After referring to the
history of s. 237, he held that under that section the
Company Judge can act ex parte and it was not necessary for
him to hear a director or an officer of the company com-
plained against and that direction given under that section
was not a condition precedent to a prosecution by the
official liquidator nor is it the intention of that section
to impinge on the powers of a criminal court under the Code
of Criminal Procedure. Leave to appeal having been refused
by the Calcutta High Court, the appellants have come to this
Court in pursuance of special leave.
On the application of the official liquidator Bachawat J. an
January 15, 1951, made an order which must be taken to be
one under s. 179. In this order it was said:
And it is further ordered that the said applicant be at
liberty to institute or defend any suit or prosecution, or
other legal proceedings, civil or criminal in the name and
on behalf of the said Bank and to continue all pending suits
and execution proceedings by or against the said Bank and
for that purpose to engage advocates, Vakils and other.
lawyers and to
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pay out of the assets of the said Bank in his hands all
costs of and incidental to such suits, prosecutions and/or
legal proceedings ".
On July 22, 1952, the official liquidator obtained the order
from Bannerji J. which the High Court has held, and in our
opinion rightly, to be an order under s. 237(1) of the
Indian Companies Act. This order said:
" It is ordered that the said applicant be at liberty to
take such civil or criminal proceedings as he may think
necessary over the report of the said Jasoda Dulal Adhikary
read with the affidavits of H. Sen Gupta and Nepal Chandra
Adhikary read with the affidavits of H. Sen Gupta and Nepal
Chandra Mitra as set out in the said Exhibit " A " ".
The passage already quoted from the judgment of the learned
Chief Justice shows that all the relevant facts were before
the Company Judge, as they were all set out in the
affidavits placed before him. The complaint was then filed
on July 23, 1952. During the pendency of the complaint the
appellants took an appeal against the order of the Company
Judge dated July 22, 1952, but it was dismissed on the
objection taken by the liquidator that it was an
administrative order and not a judicial order.
On August 5, 1953, the official liquidator took out
misfeasance proceedings under s. 235 of the Companies Act
and the appellants then applied to the High Court for
quashing the criminal proceedings already started on the
ground of commencement of proceedings under s. 235. This
application was also heard with the rule which was issued on
June 29, 1953, and it was dismissed by the same judgment by
which the rule was discharged, i. e., of June 21, 1954.
The general scheme of the Companies Act is that the Court
should have complete control of all proceedings in winding
up and it was therefore urged that the official liquidator
was not authorised to do anything either without the
sanction of the Court or without its directions. Section
179 deals with the powers of official liquidator. It
provides:
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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;.............."
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Under s. 180 the Court may provide that the official
liquidator may exercise any of the powers given under s. 179
without the sanction or intervention of the Court. Section
183 deals with the exercise and control of liquidator’s
powers. Sub-section 3 authorises him to apply to the Court
for directions in relation to any particular matter arising
in the winding up. Subsection 4 is a provision under which
the official liquidator is entitled to use his own
discretion in the administration of the assets of the
company and in the distribution amongst the creditors. Sub-
section 5 provides:
" If any person is aggrieved by any act or decision of the
official liquidator, that person may apply to the Court and
the Court may confirm, reverse or modify the act or decision
complained of, and make such order as it thinks just in the
circumstances ".
These provisions show that s. 179 deals with the powers of
the liquidator.
Under s. 235 the Court has the power to assess damages
against delinquent directors and the Court may on the
application of the liquidator or a creditor or a
contributory examine into the conduct of a director and
compel him to pay or restore money or property or to
contribute such sum to the assets of the company by way of
compensation in respect of any misfeasance on his part and
this power may be exercised irrespective of the criminal
liability of the director. Section 237 deals with
prosecution of delinquent director and the relevant portion
of this section is:
(1) " If it appears to the Court in the course of a winding
up by, or subject to the supervision of, the Court, that any
past or present director, manager or other officer, or any
member, of the company has been guilty of any offence in
relation to the company for which he is criminally liable,
the Court may, either on
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the application of any person interested in the winding up
or of its own motion, direct the liquidator either himself
to prosecute the offender or to refer the matter to the
registrar.
(2) If it appears to the liquidator in the course of a
voluntary winding up that any past or present director,
manager or other officer, or any member of the company has
been guilty of any offence in relation to the company for
which he is criminally liable, he shall forthwith report the
matter to the registrar and shall furnish to him such
information and give to him such access to and facilities
for inspecting and taking copies of any documents, being
information or documents in the possession or under the
control of the liquidator relating to the matter in
question, as he may require.
(3) Where any report is made under sub-section (2) to the
registrar, he may, if he thinks fit, refer the matter to the
Central Government for further enquiry, and the Central
Government shall thereupon investigate the matter and may,
if they think it expedient, apply to the Court for an order
conferring on any person designated by the Central
Government for the purpose with respect to the company
concerned all such powers of investigating the affairs of
the company as are provided by this Act in the case of a
winding up by the Court.
(4) If on any report to the registrar under sub-s. 2 it
appears to him that the case is not one in which proceedings
ought to be taken by him, he shall inform the liquidator
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accordingly, and thereupon, subject to the previous sanction
of the Court, the liquidator may himself take proceedings
against the offender.
(5) If it appears to the Court in the course of voluntary
winding up that any past or present director, manager or
other officer, or any member, of the company has been guilty
as aforesaid, and that no report with respect to the matter
has been made by the liquidator to the registrar, the Court
may, on the application of any person interested in the
winding up or of its own motion, direct the liquidator to
make such a report, and on a report being made accordingly,
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the provisions of this section shall have effect as
though,the report has been made in pursuance of the
provisions of sub-section (2).
(6) If, where any matter is reported or referred to the
registrar under this section, he considers that the case is
one in which a prosecution ought to be instituted, he shall
place the papers before the Advocate-General or the public
prosecutor and if advised to do so institute proceedings :
Provided that no prosecution shall be undertaken without
first giving the accused person an opportunity of making a
statement in writing to the registrar and of being heard
thereon.
..........................................................
It was this section which the appellants pressed in support
of the argument that without the order of the Court the
official liquidator cannot lodge a criminal complaint
against a past director and if he does so the proceedings
will be ab initio void. All that sub-s. (1) requires is
that if the Court finds in- the course of winding up that
any past or present director, etc., has been guilty of any
offence in relation to the company the Court may either on
the application of the person interested or of its own
motion direct the liquidator to prosecute the offender or to
refer the matter to the registrar. In the latter case if
the registrar finds that the prosecution ought to be
instituted he can do so if advised by the Advocate-General
or the public prosecutor. But emphasis was placed by
counsel for the appellants on the proviso that no
prosecution could be undertaken without first giving the
accused person an opportunity of making a statement to the
registrar or of being heard and it was urged that if the
registrar cannot institute prosecution without first giving
an opportunity to the person accused to file an explanation,
no directions could be given by the judge unless the persons
accused are first allowed an opportunity of giving an
explanation. But this contention must be repelled. Under
s. 237 (1) the Court may direct the liquidator to himself
prosecute the offender or to refer the matter to the
registrar. Giving an opportunity to the offender before
such direction is given by
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the Court is not a prerequisite of the Judge making in order
under sub-s. (1). Under sub-s. (6) the registrar is
required to give the offender an opportunity to show cause
before a prosecution is undertaken. That is a far step from
saying that s. 237(1) of the Companies Act requires a Judge
to give the offender an opportunity before he gives a
direction for prosecution by the liquidator or for reference
to the registrar.
It was further urged that under sub-s (4) in the case of
voluntary liquidation, the liquidator has to proceed after
obtaining the sanction of the Court and therefore it was
urged that the liquidator cannot institute criminal
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proceedings without such sanction in the case of winding up
by the Court. Whatever may be the case of a liquidator
under voluntary winding up sub-s. (1) of s. 237 makes no
such provision in the case of compulsory liquidation. Our
attention was drawn to some passages from the Indian
Companies Act by Sircar & Sen, 1937 Edition. At page 624 it
is stated that the object of the section is to provide
against abuses and indiscriminate commencement of
prosecutions and also for the first time a provision has
been made under this section for prosecutions being
conducted as crown prosecutions. In a passage at page 628
it is stated:
" But before the Court can exercise its jurisdiction it must
come to the conclusion that in the course of winding up the
person intended to be charged under this section has been
guilty of an offence in relation to the company for which he
is criminally liable. But such a finding is not to
prejudice the accused in any way in his trial. Per Chitty
J. in re Charles Denham & Co. Ltd. L.T. 570 at 571. "
The procedure under s. 237(1) as stated in this book at the
same page is as follows:
" The application should be made on a petition verified by
an affidavit in which materials must be set out sufficient
to make out a prima facie case.
It is not quite settled as to whether the liquidator should
make the application upon notice to any one. Generally the
application should be ex parte, but
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the Court may direct notice to be given to any person who is
in its opinion entitled to be heard ".
These passages do not support the contention that before a
prosecution can be validly instituted against a past
director the sanction of the Court is necessary. Mr.
Choudhuri then relied on an observation of Buckley J. In Re
London and Globe Finance Corporation (1) also quoted in
Sircar & Sen’s book at page 625. There the principles
guiding the Court in ordering prosecutions have been laid
down as follows:
" I have next to consider upon what principles I ought to
exercise the power given me by S. 167 of the Companies Act,
1862, to direct the official receiver to institute and
conduct a prosecution at the expense of the assets. It is
obvious that no one legitimately can or ought to institute a
criminal prosecution with a view to his personal profit.
Neither should a prosecution be instituted from motives of
vengeance against the offender. The motive of every
prosecution ought, to be to inflict punishment upon the
criminal for the proper enforcement of the law and for the
advantage of the State and with a view to deter others from
doing the like ".
This passage does not support the giving of an opportunity
to the offender before the Judge can give direction nor do
they affect the powers of the liquidator to start a
prosecution or the, criminal court to entertain a complaint
when filed by the liquidator.
The following passage from Buckley’s Company Law under the
commentary under s. 334 of the English Companies Act, 1948,
which corresponds to s. 237 of the Indian Companies Act was
then referred to:
" Proceedings will accordingly be taken by the Director of
Public Prosecutions (or Lord Advocate) or not at all ".
But this is because of the peculiar and express language of
s. 334 tinder which the Judge can only direct the liquidator
to refer the matter to the Director of Public Prosecutions
or to Lord Advocate as the case may be. In the English Act,
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special provision has been made for England saving the
institution of
(1) (1903) 1 Ch. 728, 733.
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criminal proceedings by private prosecutors. Merely because
no such provision has been made in regard to scotland does
not affect the argument.
Mr. Choudhuri then relied on certain English cases dealing
with the mode of giving directions. In re Northern Counties
Bank Limited(1) the Judge had ordered the liquidator to
ascertain by circular the wishes of the creditors and after
they had appeared to oppose the starting of the prosecution,
it was held (1) that it did not sufficiently appear that the
offence had been committed and (2) that as 2/3 of the
creditors opposed the application the prosecution should not
be ordered as expenses will have to be paid from out of the
money belonging to the creditors. The main question for
decision in that case was whether the prosecution should be
at the cost and expense of the assets of the company but
competency of the liquidator to file the complaint was not
in dispute. Reference ’was then made to Palmer’s Company
Precedents, 1952 Edition, Vol. II, again stating as to when
leave to prosecute should be given but the law stated there
does not support the case for the appellants. At page 605
it is stated :
" The summons will be ex parte, and should be supported by
affidavit showing a strong case for prosecution, and also
the extent of the assets and liabilities. The court is not
willing when the assets are small, to sanction proceedings
which may swallow up or largely reduce those assets ".
The form at p. 607 does not show that under the English
Companies Act when liberty is given to prosecute the person
accused is heard. All that is required is that the court
will make its order upon affidavits etc. filed before it and
it can also order that the costs and charges incurred by the
liquidator shall be paid out of the assets of the company.
It was next contended that although the language of s. 237
was not in the negative form still the effect of the words
was that no prosecution could be instituted without the
sanction of the Court being obtained by the liquidator. In
support of the submission counsel
(1) (1883) 31 W.R. 546.
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relied on The Queen v. Cubitt (1) which was a case under the
Sea Fisheries Act which created certain offences and by s.
11 provided:
"The provisions of this Act............... shall be enforced
by sea-fishery officers ",
who are defined by that section and it was held that the
effect of the words was that no one except the sea-fishery
officer could prosecute an offence under the Act. But there
are no such words of limitation in s. 237. In Taylor v.
Taylor(2) the words of the statute were "entitled to the
possession or the receipt of the rents and profits" and it
was held that the order under the statute could only be made
upon a petition which was within the words above quoted and
if there was no such person no order could be made but that
again was decided on the peculiar language of the statute.
Counsel also relied on Nazir Ahmad v. Crown (3) where it was
held that if the statute authorises the doing of an act in
one way then it had to be done in that way or not at all.
The argument of Mr. Choudhuri really comes to this that the
complaint filed on behalf of the official liquidator was
incompetent in the absence of a direction under s. 237 or
without complying with the procedure laid down in that
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section. Section 237(1) does not lay down any procedure for
the giving of directions and the provisions in regard to the
action taken by the registrar do not have any relevancy to
what the court should do before it gives directions.
English cases that have been cited do not go to the extent
of saying that no prosecution can be instituted without the
sanction of the court. They deal with another subject and
that is the circumstances in which the Judge would give
directions for prosecution and would sanction the assets of
the company to be expanded in prosecution. Besides nowhere
has it been stated that the court cannot give directions
without first hearing the persons accused or that the
directions of the Judge are a condition precedent to the
lawful institution of criminal proceedings by the
liquidator.
(1) (1889) 22 Q.B.D. 622. (2) (1875) 1 Ch. 426.
(3) (1936) L.R. 63 I.A. 372, 381.
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On the other hand it has been held that under s. 179 of the
Indian Companies Act no sanction is required for commencing
a prosecution. In Jaswantrai Manilal Akhaney v. The State
of Bombay (1) at the instance of the official liquidator a
report was lodged with the police against the Managing
Director of a Bank and the police submitted a charge sheet
to the Magistrate. It was observed by Sinha J. at page 502:
" In terms the section laws 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 entertain a criminal prosecution
launched in the ordinary course under the provisions of the
Code of Criminal Procedure ".
It was also pointed out in this judgment that s. 179
contains no words corresponding to the language of Drug
Control Order, 1943, which was held to be a condition
precedent for instituting prosecution in the case of Basdeo
Aggarwalla v. King Emperor (2) nor are there any prohibitory
words like those that are contained in ss. 196 and 197 of
the Criminal Procedure Code. In the former case no
prosecution could be instituted without the previous
sanction of the Provincial Government and the latter
provides that " no court shall take
cognizance................... There are two cases decided by
two Indian High Courts which support the submission of the
respondents’ counsel.
In Emperor v. Bishan Sahai (3) it was held that the
Companies Act nowhere provides that without the directions
of a Judge no criminal prosecution can be instituted. In
Mrityunjoy Chakravarti v. Provot Kumar Pal(4), it was held
that neither s. 179 nor s. 237 indicates that if the
liquidator takes action without a
(1) [1956] S.C.R. 483.
(2) [1945] F.C.R. 93.
(3) I.L.R. (1937) All. 779.
(4) A.I.R. 1953 Cal. 153.
1275
direction of the Court this action would be illegal or
invalid or it would invalidate a prosecution.
It would thus appear that both on the language of s. 237(1)
as well as on precedent the complaint made by the liquidator
against the appellants suffers from no such infirmity as to
make the proceedings null and void. The section contains no
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such words which indicate that such a prosecution cannot be
instituted by a liquidator without the sanction of the Judge
or that the Court cannot take cognizance of a complaint
without such sanction or direction. Section 179 as the
learned Chief Justice of Calcutta High Court has rightly
pointed out, deals with the powers of liquidators to
institute or defend proceedings with the sanction of the
Court and s. 237(1) deals with the powers of the Court to
give directions for prosecution of delinquent directors,
etc.
It was further urged on behalf of the respondents that in
the case before us there was a proper direction under s.
237(1). The judgment of the High Court shows that before
the learned Judge gave a direction on July 22, 1952, there
were before him proper materials and, therefore, his
sanction was perfectly valid, legal and proper. Before this
order made by Bannerji J. there was an order of Bachawat J.
dated January 15, 1951, under s. 179 and, therefore, when
the liquidator authorised his Assistant, respondent No. 1 to
institute the proceedings he was entitled to do so. As we
have said above even in the absence of such directions the
legality of the criminal proceedings instituted would not be
affected.
Nothing that we have said in this judgment must be taken to
be an expression of opinion which in any way affects the
control by the Judge of proceedings in winding up or over
the liquidators.
We would, therefore, dismiss this appeal.
Appeal dismissed.
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