IMPORTANT POINT
Company Court cannot quash, stay or compound criminal proceedings under Section 138 of N.I. Act.

Sanjiv Khanna, J.— These are two cross appeals. Spice Jet limited (Spice Jet for short), Paradise Credit Private Limited, Kesha Investment Pvt. Limited and Modi Overseas Investments Limited (collectively referred to as Modi Group) have filed Company Appeal Nos. 1 & 2/2011 impugning the order dated 14th July, 2010 passed by the Company Judge in CA No. 1130/2005 in CP No. 385/2003 and the order dated 16th July, 2010 in Co. A. (S8) 2/2000 and CA 623/2000. The Company Appeal No. 28/2010 has been preferred by Malanpur Steel Limited (Malanpur, for short) impugning the decision dated 15th July, 2005 passed by the High Court of Delhi in CA No. 797/2000 and CA No. 1852/2002 in CP No. 385/2003, sanctioning the scheme under Section 391(2) read with Section 394 of the Companies Act, 1956 (C. Act for short) on the terms set out therein. Objections were raised by Malanpur before the Company Judge against the scheme, in the said Company Appeal. Malanpur in this appeal also impugns the order dated 14th July, 2010 passed in Company Application 1130/2005, as the said order rejects the Review Application.

2. For the sake of convenience we have decided to first take up the appeal preferred by Malanpur. Primarily three contentions have been raised. First, it was submitted that Malanpur was wrongly treated at par with the unsecured creditors or the inter-corporate depositors. Shares pledged with Malanpur had been sold for recovery of their dues, and thus they formed a separate class. The second argument raised was that the principal amount claimed by Malanpur was not Rs.5 crores i.e. the amount of inter-corporate deposit, but included Rs.83,96,465 payable as interest for which a decree on admission was passed by Calcutta High Court in CS No. 161A/1997 vide order dated 23rd April, 1997. Third, it was submitted that criminal prosecution proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act, for short) cannot be made the subject matter of the order under Section 391(6) of the C. Act. Neither the scheme nor the Company Court can sanction/ direct, compulsory compounding of proceedings under Section 138 of NI Act. Reliance was placed on the judgment of the Division Bench of this Court in Krishna Texport Industries Ltd. v. DCM Ltd.1 and the judgment of the Supreme Court in JIK Industries Limited and Ors. v. Amarlal v. Jumani & Anr.2

3. Contentions of the respondent Spice Jet Ltd. and the Modi Group are that:

(i) Malanpur was correctly treated and classified with the Inter-Corporate Depositors and not as a secured creditor.

(ii) A decree holder was not a secured creditor and did not form a separate class.

(iii) Malanpur had never claimed or urged that they formed a separate class because shares were pledged to them or they had sold the said shares. The aforesaid contentions are an afterthought and should not be allowed to be raised.

(iv) The Scheme was sanctioned on 15th July, 2005 and has been success- fully implemented. The amount due and payable under the scheme has been paid to the creditors. Even the amount payable to Malanpur has been deposited.

(v) Similar or identical contention raised was negated in the order dated 29th July, 2003 passed in CA No. 606/2003 in CA No.797/2000. The Division Bench of Calcutta High Court in their order dated 20th July, 2005 has also rejected the said contention in G.A. No. 2212/2005.

(vi) The proceedings under Section 138 of the NI Act have not been quashed but stayed. In the present case, the scheme has been sanctioned and the original debt of Rs.5 crores would be satisfied on payment under the sanctioned scheme. The scheme is statutory in nature and binding on all creditors including Malanpur. It would be unfair and, unjust to allow the proceedings under Section 138 of the NI Act to continue.

4. To appreciate the controversy, the basic and necessary facts may be noticed.

(i) A company Modi Luft Limited (Company for short) was incorporated vide Certificate of Incorporation date