Vazifdar S.J., J.
In the matter of section 391(6) of the Companies Act, 1956;
And
In the matter of Scheme of compromise/arrangement between Sharp Industries Limited and its secured, unsecured creditors and equity shareholders.
With
G.E. Capital Services India.... Applicant.
Versus
Sharp Industries Ltd.....Respondent.
Company Application Nos. 339 338 of 2004 with Company Application (Lodg.) Nos. 827, 462, 880 942 of 2004 in Company Application No. 338 of 2004, decided on 4/5-11-04.
Advocates appeared :
J.D. Dwarkadas with Jal Andhyarujina i/b. Vijay Sharma, for Applicant.
D.D. Madon, with B. Collabawala K.B. Irani i/b. Madekar Co. for G.E. Capital services of India.
M.P. Rao i/b. Bharat Shah Co. for Converter Adhesives and Chemicals Pvt. Ltd.
Ms. J.M. Sidhwa with Ms. Hina Mehta, for Traxpro Enterprises P. Ltd.
R.D. Soni i/b. Ram Co. for videocon International Ltd.
Headnote:
COMPANY - Section 391(6) of the Companies Act, 1956 - [391] - The court considered the scope of section 391(6) of the Companies Act, 1956 and its applicability to criminal proceedings against the company and its officers. The court held that the term 'proceedings' in section 391(6) does not include criminal proceedings against the company and its officers. The court also ruled that the protection under section 391(6) can only be offered to a company and not to sureties who have guaranteed the repayment of the company's dues. Additionally, the court emphasized that criminal proceedings cannot be stayed or avoided by resorting to a scheme of compromise or arrangement under section 391. The judgment also clarified that the scheme under section 391 does not release persons who are not parties to the scheme, such as directors and guarantors, from their obligations. The court dismissed the company application and made other company applications absolute in terms of prayer Clause (a).
Fact of the Case:
The company sought directions for holding meetings of equity shareholders and secured creditors to consider and approve a scheme of compromise/arrangement. It also sought a stay of all proceedings pending against the company, its directors, officers, civil/criminal in any Court or Tribunal in India or abroad. Various creditors filed applications for vacating the stay granted by the court.
Finding of the Court:
The court dismissed the company application and made other company applications absolute in terms of prayer Clause (a).
Issues: The issues included the applicability of section 391(6) of the Companies Act, 1956 to criminal proceedings, the entitlement of sureties to the benefit of the provisions of section 391(6), and the requirement of notice to petitioners of winding-up petitions for applications under section 391(6).
Ratio Decidendi: The court held that the term 'proceedings' in section 391(6) does not include criminal proceedings against the company and its officers. It also ruled that the protection under section 391(6) can only be offered to a company and not to sureties who have guaranteed the repayment of the company's dues. Additionally, the court emphasized that criminal proceedings cannot be stayed or avoided by resorting to a scheme of compromise or arrangement under section 391. The judgment also clarified that the scheme under section 391 does not release persons who are not parties to the scheme, such as directors and guarantors, from their obligations.
Final Decision: Company Application No. 339 of 2004 was dismissed, and other company applications were made absolute in terms of prayer Clause (a).
2.Company Application No. 338 of 2004 was taken out by the Company, seeking directions for holding meetings of equity shareholders and secured creditors to consider and approve a scheme of compromise/arrangement proposed by it. In that company application, an order dated 27th August, 2004 in terms of the minutes of the order was passed directing the meetings to be held. Other usual directions regarding holding and convening of the meetings were also passed. The company took out Company Application No. 339 of 2004 in Company Application No. 338 of 2004 seeking a stay of the hearing and final disposal of all the proceedings pending against the applicant company, its directors, officers, civil/criminal in any Court or Tribunal in India or abroad and that the plaintiff/appellant/complainant/claimants in such proceedings be injuncted from carrying on with the said proceedings pending the outcome of the aforesaid meetings and in the event of the meetings approving the scheme of the compromise/arrangement, pending the hearing and final disposal of the proceedings for sanction of the said scheme.
3.By an order dated 27th August, 2004, an ad interim order in terms of prayer (a) of Company Application No. 339 of 2004 was granted for a period of twelve weeks i.e. upto 17-11-2004. Prayer (a) reads as under :-
"(a). That pending the outcome of the various meetings of the Creditors of the applicant company and if the said meetings approve the scheme of compromise/arrangement by a statutory majority, pending the hearing and final disposal of the proceedings for sanction of the said scheme, hearing and final disposal of all proceedings pending against the applicant, its directors, officers, civil/criminal in any Court or Tribunal in India or abroad be stayed and the plaintiff/appellant/complainants/claimants in such proceedings be injuncted from carrying on with the said proceedings."
4.The other Company Applications referred to above have been filed by various creditors for vacating the said order dated 27th August, 2004. There are several criminal and other proceedings taken out by the Applicants in these Company Applications as well as other creditors which are pending before different courts. The recoveries sought in the civil proceedings go into several crores of rupees. The criminal complaints pertain to offences inter alia under section 138 of the Negotiable Instruments Act and Section 420 of the Indian Penal Code. It is not necessary to set out the amounts involved or the number of cases filed.
5.The Applicants had made ad interim applications for vacating the stay granted by the order dated 27th August, 2004. At the hearing of these applications, it was agreed that the above Company Applications including Company Application No. 339 of 2004 should be disposed of finally. It is in these circumstances that all the above Company Applications were placed on board and taken up for hearing.
6.Section 391(6) of the Companies Act, 1956 which falls for consideration 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 disposed of."
7.The learned Counsel appearing on behalf of the applicants submitted that:-
I). Section 391(6) does not apply to criminal proceedings.
II). Protection under section 391(6) can be offered only to a company and not to sureties who have guaranteed the repayment of the dues of the company.
III). Notices of the hearing of the application for stay in Company Application No. 339 of 2004 ought to have been given by the company to the applican