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In Re: Manekchowk and Ahmedabad Manufacturing Co. Ltd., (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberCompany Application Nos. 157 of 1977 and 207 of 1980 in Company Petition No. 49 of 1976
Judge
Reported in[1983]53CompCas515(Guj)
ActsEmployees' Provident Funds Act, 1952; Companies Act, 1956 - Sections 2, 446, 446(1), 446(2) and 459; Companies Act, 1913 - Sections 171 and 179
AppellantIn Re: Manekchowk and Ahmedabad Manufacturing Co. Ltd., (In Liquidation)
Advocates: C.K. Takwani, Adv. and;Party in person
Cases ReferredJaswantrai Manilal Akhaney v. State of Bombay
Excerpt:
- - 179 of the companies act, 1913, which can be construed as restricting the powers of the court to take cognizance of an offence or the powers of the police to initiate prosecution or even of a private citizen to move the machinery of the criminal courts to bring an offender like the managing director of a company to justice and, for a prosecution for breach of trust even by a director of a company, no such condition precedent as the previous sanction of any authority is contemplated by law, unless it is a prosecution in the name and on behalf of the company by the official liquidator, who has to incur expenses out of the funds of the company, and s......be dealt with by the winding-up court ....' 5. it cannot, therefore, be urged successfully that criminal proceedings launched under the employees' provident funds act, 1952, against the erstwhile directors and officers of the company (in liquidation) are not competent without the sanction as envisaged under s. 446 because the criminal proceedings are not proceedings which could be appropriately dealt with by this court sitting as a company court. it cannot be gain-said that the responsibility to pay the contributions to the provident fund under the aforesaid act is of the employer, which, according to the definition of the said term in s. 2(e)(ii), is the person who has ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager,.....
Judgment:

B.K. Mehta, J.

1. The applicant herein who is the Provident Fund Inspector, Ahmedabad, has taken out this summons for direction to grant leave to the applicant to continue 22 criminal cases against the erstwhile directors and other officers of the Manekchowk and Ahmedabad . (in liquidation), pending on the file of Metropolitan Magistrate, Ahmedabad. The leave is sought under s. 446(1) of the Companies Act, 1956.

2. Section 446(1) of the Companies Act, 1956, provides as under :

'446. Suits stayed on winding-up order. - (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose.'

3. I do not think that the leave as prayed for is necessary obviously for the following reasons : The present prosecutions are against the erstwhile directors and officers of the aforesaid company which is admittedly ordered to be wound up by the order of this court of December 12, 1977. The prosecutions are admittedly not against the company for the time being. It is no doubt true that the words in the term 'legal proceedings' are of the widest amplitude (see Governor-General in Council v. Shiromani Sugar Mills Ltd. ).

4. In S. V. Kondaskar, Official Liquidator & Liquidator of the Colaba Land & Mills Co. Ltd. (In liquidation) v. V. M. Deshpande, ITO : [1972]83ITR685(SC) , the Supreme Court had occasion to consider the exact import of the expression 'other legal proceeding' in sub-ss. (1) and (2) of s. 446 of the Companies Act, 1956. In the opinion of the Supreme Court, the said expression takes within its sweep those proceedings only which can appropriately be dealt with by the winding-up court. Dua J., speaking for the court, held as under after reviewing the entire case law on the point (at p. 180 of 42 Comp Cas) :

'Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of section 446 read as a whole, it appears to us that the expression 'other legal proceedings' in sub-section (1) and the expression 'legal proceeding' in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding-up court ....'

5. It cannot, therefore, be urged successfully that criminal proceedings launched under the Employees' Provident Funds Act, 1952, against the erstwhile directors and officers of the company (in liquidation) are not competent without the sanction as envisaged under s. 446 because the criminal proceedings are not proceedings which could be appropriately dealt with by this court sitting as a company court. It cannot be gain-said that the responsibility to pay the contributions to the provident fund under the aforesaid Act is of the employer, which, according to the definition of the said term in s. 2(e)(ii), is the person who has ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such officer (vide Inderjit C. Parekh v. B. K. Bhatt : 1974CriLJ906 ).

6. I am not expressing any opinion that the erstwhile directors of the aforesaid company are guilty of the offence with which they are charged since that is a matter which is still to be investigated and adjudicated upon by the criminal court. In any case, the present prosecutions are not of the company also and, therefore, the present prosecutions against the erstwhile directors or officers of the Manekchowk & Ahmedabad Mfg. Co. Ltd. cannot be said to be incompetent without the permission envisaged under s. 446 of the Companies Act. Same view has been taken by the Calcutta and Andhra Pradesh High Courts under s. 171 of the Companies Act, 1913, which is in pari materia with s. 446(1) of the Companies Act, 1956. Both the courts have held that there is no bar whatsoever in s. 171 to proceed with a criminal prosecution against the directors and officers of the company since the section does not require leave of the court for institution of such proceedings (vide : Bhagirath Chandra Das v. Emperor [1947] 17 Comp Cas 93 (Cal) and Gumpana Hanumanatha Rao v. T. S. Rama Rao : AIR1961AP493 .

7. The Supreme Court has in Jaswantrai Manilal Akhaney v. State of Bombay : 1956CriLJ1116 , held that there is nothing in s. 179 of the Companies Act, 1913, which can be construed as restricting the powers of the court to take cognizance of an offence or the powers of the police to initiate prosecution or even of a private citizen to move the machinery of the criminal courts to bring an offender like the managing director of a company to justice and, for a prosecution for breach of trust even by a director of a company, no such condition precedent as the previous sanction of any authority is contemplated by law, unless it is a prosecution in the name and on behalf of the company by the official liquidator, who has to incur expenses out of the funds of the company, and s. 179 does not control the general law of the land. In that view of the matter, therefore, I do not think that any leave is necessary under s. 446(1) to continue the prosecutions against the erstwhile directors and officers of the aforesaid company.

8. Summons is, accordingly, disposed of.


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