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HIGH COURT OF JUDICATURE AT BOMBAY
THE HONOURABLE MR. JUSTICE A.S. OKA
JIK Industries Ltd. & Others
Versus
Sunil Ranchorlal Bajaj & Others
Criminal Writ Petition Nos.2770 of 2006, 2771 of 2006, 2781 of 2006, 2782 of 2006, 2783 of 2006, 2784 of 2006, 2786 of 2006, 2787 of 2006, 2788 of 2006, 2789 of 2006, 288 of 2007, 290 of 2007 and Criminal Writ Petition Nos.710 of 2008, 711 of 2008, 712 of 2008, 713 of 2008, 714 of 2008, 715 of 2008, 716 of 2008, 717 of 2008, 718 of 2008, 719 of 2008, 1424 of 2008, 1425 of 2008, 1426 of 2008, 1427 of 2008, 1428 of 2008, 1429 of 2008, 1430 of 2008, 1431 of 2008, 1432 of 2008, 1433 of 2008
Decided on : 26-08-2008
Whether a compromise or arrangement sanctioned under section 391 of the Companies Act, 1956 (hereinafter referred to as ‘the said Act of 1956’) relating to the accused company amounts to compounding of the offence under section 138 read with section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ‘the said Act of 1881’)? What is the effect of an order of sanction of compromise or arrangement under section 391 of the said Act of 1956 in relation to the accused company on a pending complaint alleging commission of offences under section 138 read with section 141 of the said Act, 1881 against the company and its directors?
Fact of the Case:
In the instant case, the petitioners were accused in complaints filed by the first Respondent under section 138 read with section 141 of the said Act of 1881. The first Petitioner-company had issued a cheque in favour of the 1st respondent towards repayment of a loan advanced by the 1st respondent to the 1st petitioner. The said cheque was dishonoured. The first Petitioner filed a Company Application in this Court along with a scheme of arrangement. In the said Company Application, an order was passed by this Court on 6th May 2005 directing the first Petitioner Company to hold a meeting of the equity share holders, unsecured creditors, fixed deposit holders, etc. Accordingly, a meeting was held on 25th June 2005. A report of the meeting was submitted to this Court. On the basis of the report, a Company Petition under section 391 of the said Act of 1956 was filed and by order dated 16th September 2005, the scheme of arrangement was sanctioned by this Court. The petitioners contended that as per the scheme of arrangement approved by this Court, the first Petitioner was required to issue its equity share shares to all its un-secured creditors, fixed deposit holders, etc. as against its liability as existing on 28th February 2005. On the basis of the scheme of arrangement approved by this Court, an application was made by the Petitioners in the complaints filed by the first Respondent. In the said Applications, a contention was raised that the liability of the first Petitioner stands discharged by issuing equity shares to the first Respondent-Complainant. A contention was raised in the said application that the first Petitioner has complied with the order of this Court by issuing letters of allotment of its equity shares to the first Respondent-Complainant. The prayer in the application was that the offences under section 138 read with section 141 of the said Act of 1881 may be compounded. The said application was contested by the first Respondent-Complainant by contending that a complaint under section 138 of the said Act of 1881 was not a recovery proceeding. It was contended that the application filed by the Petitioner for compounding of the offence was not maintainable and therefore, the application be dismissed. By an order passed by the learned Magistrate on 19th September 2006, the said applications made by the Petitioners were rejected. The learned Magistrate while rejecting the applications came to the conclusion that the parties will have to adduce evidence and before evidence was adduced, it was premature to declare that the offence was compounded. Revision Applications were preferred by the Petitioners before the Sessions Court for challenging the orders of the Trial Court. The Revision Applications were dismissed by the learned Additional Sessions Judge. While dismissing the Revision Applications, the learned Additional Sessions Judge observed that an order of compounding an offence cannot be passed against the wishes of the first Respondent-complainant and he cannot be compelled to enter into a compromise. The learned Judge held that compounding of an offence is a bilateral act. He observed that an offence cannot be compounded on the basis of the unilateral Act on the part of the accused.
Finding of the Court:
The Court held that the sanction of the scheme under section 391 of the said Act of 1956 does not amount to compounding of an offence under section 138 read with section 141 of the said Act of 1881. Further, the sanction of the scheme under section 391 of the said Act of 1956 will not have the effect of dismissal/termination of proceedings of the complaint.
Issues: 1. Whether a compromise or arrangement sanctioned under section 391 of the Companies Act, 1956 (hereinafter referred to as ‘the said Act of 1956’) relating to the accused company amounts to compounding of the offence under section 138 read with section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ‘the said Act of 1881’)? 2. What is the effect of an order of sanction of compromise or arrangement under section 391 of the said Act of 1956 in relation to the accused company on a pending complaint alleging commission of offences under section 138 read with section 141 of the said Act, 1881 against the company and its directors?
Ratio Decidendi: The Court observed that the scheme under section 391 of the said Act of 1956 which envisages a compromise or arrangement binds not only the company but even dissenting creditors or members as the case may be. The Court further observed that the effect of the sanctioned scheme is to supply by recourse to the procedure thereby prescribed the absence of that individual agreement by every member of the class to be bound by the scheme which would otherwise be necessary to give it validity. The Court held that the sanction of the scheme of arrangement or compromise under section 391 of the said Act of 1946 does not have effect of automatically terminating the criminal proceedings pending against the company under section 138 of the said Act of 1881. The Court further held that the scheme of compromise or arrangement sanctioned by the Company Court under section 391 of the said Act of 1956 by itself will not amount to automatic compounding of an offence under section 138 and/or section 141 of the said Act of 1881.
Final Decision: The Court dismissed the petitions holding that the case for compounding is not established. However, the Court clarified that this judgment will not preclude the petitioners from filing separate petitions/applications invoking the sections 482 of the Code of Criminal Procedure, 1973 for quashing the pending complaint and all contentions in that behalf are expressly kept open.
1. The submissions of the learned Counsel appearing for the parties were heard earlier. These Petitions are being disposed of by a common judgment as following issues are involved in all these Petitions.
(1) Whether a compromise or arrangement sanctioned under section 391 of the Companies Act, 1956 (hereinafter referred to as ‘the said Act of 1956’) relating to the accused company amounts to compounding of the offence under section 138 read with section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ’the said Act of 1881’)?
(2) What is the effect of an order of sanction of compromise or arrangement under section 391 of the said Act of 1956 in relation to the accused company on a pending complaint alleging commission of offences under section 138 read with section 141 of the said Act, 1881 against the company and its directors?
FACTS OF THE CASES
2. The learned Counsel appearing for the parties have made submissions on the aforesaid issues. Shri Desai, learned Counsel appearing for the Petitioner in Writ Petition No.2770/2006 has made elaborate submissions. The other learned Counsel appearing in the connected matters have also made elaborate submissions. Before referring to the submissions, it will be necessary to briefly refer to the facts of the case.
3. In so far as Criminal Writ Petition Nos.2770 to 2771, 2781 to 2789 of 2006, 288 and 289 of 2007 are concerned, the facts can be summarised as follows:-
(a) In these Writ Petitions, the first Respondent is the Complainant who filed separate complaints under section 138 read with section 141 of the said Act of 1881. The Petitioners are the accused in the said complaints filed by the first Respondent. The first Petitioner (first accused) is a Company registered under the said Act of 1956. The first Petitioner-company had issued a cheque in favour of the 1st respondent towards repayment of a loan advanced by the 1st respondent to the 1st petitioner. The said cheque was dishonoured.
(b) The first Petitioner filed a Company Application in this Court alongwith a scheme of arrangement. In the said Company Application, an order was passed by this Court on 6th May 2005 directing the first Petitioner Company to hold a meeting of the equity share holders, unsecured creditors, fixed deposit holders, etc. Accordingly, a meeting was held on 25th June 2005. A report of the meeting was submitted to this Court. On the basis of the report, a Company Petition under section 391 of the said Act of 1956 was filed and by order dated 16th September 2005, the scheme of arrangement was sanctioned by this Court.
(c) According to the case of the Petitioners, as per the scheme of arrangement approved by this Court, the first Petitioner was required to issue its equity share shares to all its un-secured creditors, fixed deposit holders, etc. as against its liability as existing on 28th February 2005. On the basis of the scheme of arrangement approved by this Court, an application was made by the Petitioners in the complaints filed by the first Respondent. In the said Applications, a contention was raised that the liability of the first Petitioner stands discharged by issuing equity shares to the first Respondent-Complainant. A contention was raised in the said application that the first Petitioner has complied with the order of this Court by issuing letters of allotment of its equity shares to the first Respondent-Complainant. The prayer in the application was that the offences under section 138 read with section 141 of the said Act of 1881 may be compounded.
(d) The said application was contested by the first Respondent-Complainant by contending that a complaint under section 138 of the said Act of 1881 was not a recovery proceeding. It was contended that the application filed by the Petitioner for compounding of the offence was not maintainable and therefore, the application be dismissed. By an order passed by the learned Magistrate on 19th September 2006, the said a
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