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Bombay High Court
Hon'ble Vazifdar S. J., J
Company Application No. 339 and 338 of 2004
Decided on 4/5-11-2004
G. E. Capital Services India
versus
Sharp Industries Ltd.
The word 'proceedings' in section 391(6) of the Companies Act does not include criminal proceedings. The scheme under section 391 does not release persons who are not parties to the scheme, such as directors and guarantors of the company.
Headnote:
Stay of Proceedings - Companies Act - 391(6)
Fact of the Case:
Company sought directions for holding meetings to consider a scheme of compromise/arrangement. Company also sought a stay of all proceedings pending against it, its directors, officers, civil/criminal in any Court or Tribunal in India or abroad pending the outcome of the meetings and in the event of the meetings approving the scheme.
Finding of the Court:
The court held that the word 'proceedings' in section 391(6) of the Companies Act does not include criminal proceedings. The court also found that the scheme under section 391 does not release persons who are not parties to the scheme, such as directors and guarantors of the company. Additionally, the court found that the company failed to give notice to the petitioners of the application it proposed to make under section 391(6).
Issues: 1. Whether section 391(6) applies to criminal proceedings. 2. Whether directors and guarantors of the company are entitled to the benefit of the provisions of section 391(6). 3. Whether the company failed to give notice to the petitioners of the application it proposed to make under section 391(6).
Ratio Decidendi: The word 'proceedings' in section 391(6) does not include criminal proceedings. The scheme under section 391 does not release persons who are not parties to the scheme, such as directors and guarantors of the company. The company failed to give notice to the petitioners of the application it proposed to make under section 391(6).
Final Decision: Company Application No. 339 of 2004 was dismissed. Other Company Applications in Company Application No. 338 of 2004 were made absolute in terms of prayer Clause (a). The order dated 27th August, 2004 shall operate till 17th January, 2005 to enable the Company to carry the matters higher. There shall be no order as to costs.
Hon'ble Vazifdar S. J., J. : For convenience I will refer to the applicant in Company Application No. 339 of 2004 as the company and to the applicants in the other Company Applications as the Applicants.
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
