1. We have before us a Rule taken out by two past directors of a company, now in liquidation, who are being prosecuted on charges under Sections 406, 467 and 477A, read with Section 120B of the Penal Code and a further application subsequently made by the same two persons. The application of which notice has been given to the opposite parties was directed to be heard along with the Rule.
2. Both by the application on which the Rule was issued and the subsequent application, the Petitioners have prayed that the criminal proceeding pending against them be quashed. The ground urged by them in the Rule is that in the absence of a prior direction judicially given by the Court under Section 237 (1) of the Companies Act, the prosecution launched against them by the liquidator is 'ab inito' void. In the application they contend that the liquidator having taken action under Section 235 of the Companies Act in regard to the self-same matter, the criminal prosecution is no longer maintainable. The questions have arisen to the following way.
3. The first Petitioner, Dr. Sailendra Nath Sinha, was one of the directors of the Bank of Commerce Ltd., and the second Petitioner, Sri Subhendu Prasad Roy Choudhury, was its Managing Director. On 7-8-1950, this Court on its Original Side made an order for the winding up of the Company and appointed Mr. G. K. Dutt, a Barrister, to be the Official Liquidator. On 7-9-1950, Mr. Dutt was replaced by the Official Receiver. On 15-1-1951, Bachawat J. made the usual general order under Section 179 of the Companies Act, authorising the Official Liquidator to institute or defend any suit or prosecution or other legal proceeding, civil or criminal, in the name or on behalf of the Company.
In July, 1952, the Official Liquidator applied to the Court for directions on a report made to him by his senior Assistant, supported by affidavits of certain ex-officers of the Bank, from which it appeared that the Petitioners, acting in concert, had committed the offences of criminal misappropriation, forgery of valuable securities and falsification of accounts in relation to the assets of the Bank. Banerjee, J., who was the Company Judge at the time, disposed of the application on 22-7-1952 by giving liberty to the official Liquidator to take such civil or criminal proceedings as he might think necessary and to. engage a senior pleader for the purpose on the usual fees.'
The material portion of the learned Judge's order, as drawn up, reads as follows : 'It is ordered that the said Applicant be at liberty to take such civil or criminal proceedings as he may think necessary over the report of the said Jasoda Dulal Adhikary, read with the affidavit of H. Sen Gupta and Nepal Chandra Adhikary --And it is further ordered that the said Applicant be at liberty to engage a Senior Pleader on usual fees for the purpose as aforesaid.'
4. Thereafter, the Official Liquidator authorised one Jasoda Dulal Adhikary, whom he described as 'my seniormost Assistant incharge of the liquidation of the Bank' to lodge a complaint on his behalf and on 23-7-1952, a complaint, was filed by Adhikary before the Chief Presidency Magistrate, Calcutta, charging the Petitioners with, the offences set out earlier in his report to the Official Liquidator, It was stated in the petition of complaint that on being moved for directions, this Court had, by an order passed on 22-7-1952, directed the Official Liquidator to take the necessary legal steps against the accused persons in the Police Court. On receipt of the complaint, the learned Chief Presidency Magistrate directed summonses to issue to both the Petitioners under Sections 406, 467 and 477A, read with Section 120B of the Penal Code.
5. After the institution of the criminal proceedings, the Petitioners preferred an' appeal against the order of Banerjee, J. The appeal, which was Appeal from Original Order No. 149 of 1952, came to be heard by us on 10-3-1953. It was then contended on behalf of the Official Liquidator that the appeal was not maintainable, inasmuch as the order appealed from was a purely administrative order by which the learned Judge had not intended or purported to do anything more than authorise the expenditure that might be required for legal proceedings and that the Official Liquidator also had not, by the application on which the order was made, asked for anything else. That construction of the order' was accepted on behalf of the Petitioners and it was also agreed by their learned Counsel that, on such construction, no appeal lay from the order. The view submitted to us by both the parties appeared to us to be the correct view and accordingly we dismissed the appeal.
6. In the meantime, the criminal case had been transferred by the learned Chief Presidency Magistrate to Mr. H. N. Sen, the Magistrate of the 6th Court, for disposal. After the dismissal of-the appeal, the Petitioners made an application before the 6th Court for their discharge on the ground that the prosecution was not maintainable. The ground urged was that in view of the provisions of Section 237 (1) of the Companies Act, a liquidator could prosecute a director, manager or other officer of a Company only under the authority of a direction given by the Company Judge and that, in the present case, the direction under the authority of which the petition of complaint purported to have been filed, had subsequently been admitted to be a mere administrative order, so that there was no proper direction, authorising the prosecution, at all.
The learned Magistrate did not accept that -contention. He, held that there was nothing in Section 179 or Section 237 of the Companies Act to indicate that a direction by the Company Court was essential to the validity of a criminal proceeding instituted by a liquidator and that, consequently, even assuming that there was no direction under Section 237 (1) in the present case, there was no reason to hold that the proceedings were invalid. The learned Magistrate's order, dismissing the Petitioner's application, was passed on 13-6-1953.
7. Thereafter, the Petitioners moved this Court on 29-6-1953, and obtained the present Rule, requiring the Chief Presidency Magistrate and the complainant to show cause why the proceedings should not be quashed on the ground of an absence of a direction of the Company Court and some other minor grounds. On 24-8-1953, they made a further application by which they submitted that the proceedings should be quashed also on the ground that the Official Liquidator had since commenced proceedings under Section 235 of the Companies Act in regard to the identical matters. The application, as I have already stated, was directed to be heard along with the Rule.
8. It will be convenient to take up the Rule first. The main contention of the Petitioners in the Rule is that the Official Liquidator defeated their appeal on a ground which must react on him and cost him his complaint. Before examining that contention, I should like to dispose of two minor points which were faintly urged.
9. It was said that the Companies Act empowered only the liquidator and no one else to take legal proceedings against an officer or a member of the Company concerned and therefore the complaint filed by Jasoda Dulal Adhikary was bad. There is no substance in that contention. Adhikary says in the very first paragraph of the petition of complaint that he is the principal Assistant in charge of the liquidation of this particular Bank under the Official Liquidator and that he has been authorised by his master to file the petition for him and on his behalf. In a letter of autorisation annexed to the petition, the Official Liquidator says that he is authorising Adhikary 'to lodge the above-mentioned complaint' on his behalf and to take all necessary steps in connection therewith. There can thus be no question that the complaint is in fact a complaint by the Official Liquidator and he only caused it to be made and filed by another person on his behalf.
Indeed, the main argument of the Petitioners that the complaint is bad because of the absence of a direction under Section 237 (1), assumes that the complaint is a complaint by the Official Liquidator, for it be not, no question of a direction under Section 237 (1) can at all arise. But even assuming that the complaint cannot properly be treated as a complaint by the Official Liquidator himself, I can find no reason for holding that it is invalid. The provisions of the Companies Act which deal with the subject of the liquidator taking criminal proceedings are concerned only with the powers of the Liquidator under the Act. They purport to control him alone but not also the Criminal Court. At least with regard to offences under the Penal Code and not special offences created by the Companies Act, the Criminal Courts are in no way limited to complaints by the liquidator and the fact that the Companies Act contains certain specific provisions regarding the initiation of criminal proceedings by the liquidator for offences committed in relation to the Company does not mean or involve that the Criminal Courts cannot entertain a complaint with regard to the same offences by anyone else.
It may be that Adhikary cannot be said to be a person aggrieved by the offences alleged to have been committed by the Petitioners. But Section 198 of the Criminal P.C. which provides that no Court shall take cognizance of an offence except upon the complaint of some person aggrieved thereby, subject to certain exceptions under which a liquidator cannot certainly come, is limited only to offences under Chapter 19 and Chapter 21 of the Penal Code. In my view, no valid objection can be taken to the legality of the complaint on the ground that it is not a complaint by the liquidator.
10. It was next said that the complaint was also bad for the reason that it was not a complaint in the name and on behalf of the Company. That objection would seem to be pertinent only to Section 179 of the Act but not also to Section 237 (1), for, the latter section speaks simply of a direction to the liquidator to prosecute the offender. It may, however, be argued, that when the liquidator does prosecute in pursuance of a direction under Section 237 (1), he will have to do so in the form laid down in Section 179, but even that argument will not apply in a case where there is no general sanction under Section 179, but only a direction under Section 237(1). In any event, it appears to me that the effect of the provision in the Companies Act that the liquidator may, with the sanction of the Court, institute a prosecution in the name and on behalf of the Company is not that the Criminal Courts cannot entertain a prosecution by the liquidator in any other form.
Except in the case of certain proceedings under the Companies Act itself, the question whether a proceeding was brought in the form prescribed by the Act is not a question of the validity of the proceeding, but a question whether the liquidator will get the costs ot the proceeding out of the assets of the Company. Even in the case of a proceeding under the Companies Act, it was held in the case of 'Loomchand Salt v. Official Liquidators, Peerdan Joharmall Bank Ltd.' : AIR1953Mad595 , that the failure to bring the proceeding in the name and on behalf of the Company was only a formal defect, when the application was substantially on behalf of the Company.
In the present case also, it is perfectly clear from the petition of complaint that it is being made by the liquidator on the Company's behalf.. Indeed, it appears to me that to name a Company as the complainant in a petition of complaint can hardly be appropriate, because if the Magistrate desires to examine the complainant on oath, it will not be possible to do so, at least in the strict literal sense. For these reasons, I must overrule the second contention as well.
11. But while I am repelling the contentions of the Petitioners, I must not be understood to approve of the procedure followed by the Official Liquidator. There is no reason why he should have adopted a mode of filing the complaint which requires an argument to defend it and which can be defended only on the ground that it does not invalidate the proceedings. It was a simple thing for him to file the complaint personally and describe it as a complaint of the Bank of Commerce Ltd., (In Liquidation) by its Official Liquidator himself.
12. I may now proceed to a discussion of the main contention of the Petitioners. It was founded directly on Section 237 (1) of the Companies Act and incidentally on Section 179. The first proposition of Mr. Chaudhuri who appeared for the Petitioners was that the liquidator was a creature of the statute, viz., the Companies Act, and that it was implict in such status of the liquidator as also apparent from the whole scheme of the Act that he could exercise only such powers as were authorised by the statute and exercise them only in the manner authorised. Indeed, Section 182 (4) of the Act expressly said that the liquidator must exercise his own discretion in the administration of the assets of the Company, 'subject to the provisions of this Act'. Among the provisions of the Act were Sections 179 and 237 (1).
According to Mr. Chaudhuri, the former provision was concerned with legal proceedings against persons not connected with the Company and was not relevant in the present case. But the latter provision applied and if there was no prior direction by the Court, as required fey the section, the liquidator could not launch a valid prosecution against an officer of the Company or a member thereof for offences committed in relation to the Company.
13. In my view, as respects the present question, Mr. Chaudhuri's approach to the Companies Act was mistaken. The Act undoubtedly lays down the powers and the duties of the liquidator and undoubtedly seeks to control him in his administration of the assets of the Company. But the relevant provisions have only what I may call an internal application. They aim at keeping the liquidator within certain limits and leading him along certain lines In the discharge of his functions under the Act and as between him and the persons interested in the Company as creditors or share-holders, the propriety or validity of his acts must be judged by the conditions they prescribe. If he fails to observe those conditions or exceeds his statutory powers he will be answerable to the Company Court which may hold his acts to be unauthorised or refuse him his costs or even remove him. But these provisions of the Companies Act have no bearing on the competency of the liquidator as a suitor in other Courts or the validity of proceedings instituted by him, except when they say so, either expressly or by necessary implication.
Where the Act intends to regulate proceedings In other Courts, it has made an express provision to that effect, as for example, in Sections 171 and 232 (2). It has made no similar provision with regard to proceedings instituted by a liquidator and certainly none with regard to criminal proceedings, except perhaps in Section 237 (4) which relates to proceedings by a liquidator in a voluntary liquidation. It is doubtful whether even the last-named section means anything more than that so far as it concerns his acting in accordance with the Companies Act, the liquidator may himself take proceedings against the offender only with the previous sanction of the Court and whether the effect also is that if he takes proceedings without such sanction, the proceedings before the Criminal Court will be invalid. Be that as it may, the remaining provisions of the Companies Act seek generally to regulate the actions of the liquidator within the ambit of the Act itself and have no reference to the validity of proceedings instituted by him in other Courts, except in the case of a specific enactment, if any.
The Act has not said that no Court shall take cognizance of an offence committed in relation to a Company in liquidation by an officer or a member upon a complaint of the liquidator, unless such complaint is made under the direction of the Company Court, previously given or obtained. Nor can it be contended that inasmuch as liquidation under the provisions of the Companies Act is liquidation by the 'Court and not liquidation by the liquidator, a direction by the Court is essential, since otherwise there would be no com-plaint by or on behalf of a proper complainant. Except as to certain specified offences, the criminal law can be set in motion by anyone. I am accordingly of opinion that there is nothing in the general scheme of the Companies Act or the status of liquidator thereunder which compels or justifies the conclusion that in the absence of a prior direction by the Company Court, a criminal prosecution instituted by the liquidator against an officer or a member of the Company for offences committed in relation to the Company's affairs, would be invalid.
14. Mr. Chaudhuri next referred to Section 237 of the Companies Act and submitted that the terms of that section themselves suggested that a valid prosecution could be instituted by the liquidator only under the direction of the Court. Sub-section (1) of the section reads thus :
'If it appears to the Court in the course of a winding up by, or subject to the supervision of, the Court that any present or past director. manager or other officer, or any member, of the Company has been guilty of any offence in relation to the Company for which he is criminally liable, the Court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator either himself to prosecute the offender or refer the matter to the registrar.'
15. Mr. Chaudhuri pointed out that Section 237(1) was a reproduction of Section 277(1) of the English Companies Act of 1929 with the natural difference that in lieu of a reference to the Registrar, the English section spoke of a reference to the Director of Public Prosecutions In the case of a winding up in England & a reference to the Lord Advocate in the case of a winding up in Scotland. He then referred to the corresponding section in English Companies Act of 1948, Section 334(1), where the provision for directing the liquidator to prosecute the offender himself had been omitted and next he referred to the comment on the new section in Buckley on the Companies Act, lath Edition, p. 693, expressed in the following words:
'The section, as now amended, no longer contemplates the liquidator prosecuting. Proceedings will accordingly be taken by the Director of Public Prosecutions or not at all.'
16. Mr. Chaudhuri's contention was that with regard to the power of the liquidator to launch prosecutions against directors or members of a Company, the comment in Buckley indicated the true position in law which was that the provision in the Companies Act governed the matter. If there could be no prosecution in England now in cases where the Director of Public Prosecutions would not prosecute, it must be for the reason that the liquidator had no power to prosecute himself and if he did not have the power, it was because the power was not provided for in Section 334(1). There was thus no power outside the section contained in the Companies Act. It was contended that, likewise, such power as the liquidator had in England before the Act of 1948 had to be sought only in Section 277(1) of the Act of 1929 and such power as the liquidator had in India had to be sought only in Section 237(1) of the Indian Act & that in both cases it must be held that the power may not be exercised otherwise than in accordance with the terms of the relevant section and therefore otherwise than under a direction by the Court.
17. In my opinion, what I have already stated in connection with Mr. Chaudhuri's argument as to the general scheme of the Companies Act, must apply equally to his special contention as to the effect of Section 237(1). The section is concerned only with the proper procedure under the Companies Act and lays down certain circumstances in which and certain conditions subject to which, a liquidator may properly launch a criminal prosecution against officers and members of the Company in the course of the liquidation and by way of taking a step therein. Whether those are the only circumstances, even under the Companies Act, in which the liquidator can properly launch a prosecution, I need not pause to consider here. It is sufficient to point out that the section does not purport to go beyond laying down in what circumstances a prosecution by the liquidator will be warranted by the Companies Act, but it cannot have the effect of regulating the validity of any prosecution actually launched by him before a Criminal Court.
The comment in Buckley must obviously be read as stating the position under the Companies Act and saying no more than that under the provisions of the present English Act, it is only the Director of Public Prosecutions who can prosecute an officer or a member of a Company in liquidation and that if he does not prosecute, the liquidator, acting as such within the provisions of the Act, is not authorized by the Act to do so. In . saying that 'proceedings will be taken by the Director of Public Prosecutions or not at all', the commentator could not have meant that no proceedings taken by any other person would be valid or even that proceedings, if actually taken by the liquidator, would not be valid as criminal proceedings.
To do so would be to ignore Section 445 of the Act which expressly provides, as did Section 368 in the Act of 1929, that
'nothing in this Act relating to the institutionof criminal proceedings by the Director ofPublic Prosecutions shall be taken to precludeany person from instituting or carrying on anysuch proceedings.'
It is true that the Indian Act does not contain a similar saving provision, but as was pointed out by a Division Bench of this Court in the case of. -- 'Surrendra Nath v. Kalipada Das' : AIR1940Cal232 , the saving section must have been inserted in the English Act only to put the matter beyond doubt and the absence of a similar provision cannot affect the jurisdiction of the Criminal Courts or the right of even private citizens to set the law in motion against offences. I am therefore unable to accept the contention of Mr. Chau-dhuri that even for the purposes of criminal law, the provisions of Section 237(1) are decisive and that they bar a prosecution by a liquidator except in accordance with the provisions of the section.
Indeed, a decision which Mr. Chaudhuri himself cited as laying down correctly the scope and effect of the old English section corresponding to Section 237(1), makes it perfectly clear that in a decision under the section as to whether a direction to prosecute will or will not be given to the liquidator, the question of the propriety of a prosecution or the validity of a prosecution, if otherwise launched, is in no way involved. The case was one under Section 167 of the .English Companies Act of 1862 which was practically in the same terms as Section 237(1), except that the only provision it contained was a provision for a direction to the liquidator to prosecute without any alternatives. Dealing with an application by the liquidator for a direction to prosecute, Chitty, J. observed as follows :
'The question is not whether the gentlemen, who are alleged to have been guilty of certain offences within the reach of the criminal law, are to be prosecuted or not, but whether they are to be prosecuted at the cost and expense of the assets of the Company.' -- 'In re, Northern Counties . Bank Ltd.', (1883) 31 W. B. 546 (C).
18. In my opinion, even if it be required by the Companies Act what a liquidator should act under the authority of a direction by the Court, if he is to launch a prosecution against an officer or a member of the Company in the proper discharge of his duty as a liquidator, the absence of such a direction cannot invalidate a criminal prosecution actually launched by him without such direction. If I may say so with respect, it was rightly so decided in the cases of -- 'Emperor v. Bishan Sahai Vidyarthi' : AIR1937All714 : -- 'C. M. Mehta v. Emperor', 1937 Mad W. N. 1122(2) (E) and -- Mrityunjoy Chakravartti v. Provat Kumar Pal', : AIR1953Cal153 .
19. In view of the above conclusion which is sufficient for the disposal of the Rule, it is not necessary to consider the alternative contention on behalf of the Official Liquidator that even assuming that a direction by the Court is essential to the validity of a prosecution, the order of 22-7-1952 constituted such direction, although it might be an administrative order or that assuming there was no direction under Section 237(1), there was still the general sanction under Section 179, given on 15-1-1951, which was sufficient. Nor is it really necessary to consider the contention of Mr. Chaudhuri that the direction contemplated by Section 237(1) is a judicial direction and that it must be not a general direction of an omnibus character but a specific direction given with respect to a particular prosecution. As, however, these matters were argued at some length, I would briefly indicate my views thereon.
20. First as to the true scope and object of Section 237(1). The leading decision on that subject is the case of -- 'In re, London and Globe Finance Corporation Ltd.', 1903-1 Ch. 728 (G), which also was a case under Section 167 of the Act of 1862. It appears from the principles laid down in that case and subsequently in other cases that after a 'prima facie' case for prosecution has been made out, the main question to consider on a liquidator's application under the section is whether the offences are such that a prosecution for them by the liquidator ought to be directed, although the consequence will be to throw the costs of the prosecution on the assets of the Company, The effect of the Court directing the liquidator to prosecute is to make the assets of the Company liable for the costs of the prosecution. The Court has therefore to consider carefully whether it will give such a direction and throw such a burden on the Company, because the finances of a Company in liquidation must be in a depleted and confused state.
That is also the reason why the section provides for a reference to the Registrar and its counterpart in England provides for a reference to the Director of Public Prosecutions, for, if the public authorities can be induced to take up the prosecution, the Company will be relieved of the burden of bearing the costs. But as to whether the Court will direct the liquidator himself to prosecute the offender, the principle to be followed is to see whether the circumstances are such that a good citizen, desirous of doing his duty by the State, would feel that he ought, in discharging that duty and at his own expense and to his own loss, to institute a prosecution. If the answer be in the affirmative, then only should the liquidator be directed to prosecute, although the Court should also bear in mind the wishes of the creditors. The object of the section in providing for a direction by the Court is thus to protect the interests of the creditors and not to lay down a pre-condition to the validity of prosecutions. Its effect is to limit the specially authorised prosecutions to only those that may appear to be called for by public duty but not to invalidate prosecutions launched without the authority of a direction.
If a liquidator institutes a prosecution without a direction given to him under the section, the question may be raised by the creditors in the liquidation proceedings and he may not be allowed to draw upon the assets of the Company for his expenses. But the accused in the criminal prosecution will not be furnished with a ground to impugn the validity of the proceedings. In the case of -- 'Dublin City Distillery Ltd. v. Doherty', 1914 AC 823 (H), it was held by all the Lords that Section 151 of the Companies (Consolidation) Act, 1908, which enabled a liquidator, in the case of a winding up in Ireland, to bring or defend legal ' proceedings with the sanction of the Court, did not confer on third parties any right to object to proceedings brought by the liquidator on the ground that no such sanction had been obtained. The same must be the position under Section 237(1).
21. If as to whether a direction to prosecute should or should not be given, the nature of the consideration under the section be as stated above, it can hardly be contended that the direction contemplated by the section is a judicial direction. Mr. Chaudhurj referred to Form No. 654 set out in Palmer's Company Precedents, 16th Edition, Vol. II, p. 607 and pointed out that under the English practice, the direction was given upon an application by summons and upon hearing Counsel. But it is stated in the very same book at pages 604 and 605 that the proper course is to apply by summons 'ex parte' and the summons should be supported by an affidavit, showing a strong case for prosecution and also the extent of the assets and liabilities. A 'prima facie' case must undoubtedly be made out, but if such a case be made out, it is not necessary to ailow evidence to be adduced in opposition -- 'In re Charles Denham & Co.', (1884) 51 LT 570 (I).
Nothing in the nature of a judicial proceedings is thus required to be held. Mr. Chaudhuri contended that the proceedings before the Company Court in connection with an application for a direction to prosecute were intented to be in the nature of commitment proceedings and the Court would give a direction only if after a judicial consideration of the matter, it came to be satisfied that a 'prima facie' case had been made out for which the accused persons ought to stand their trial. I can find no warrant for that contention. A direction under Section 237(1) given on an application by the liquidator is essentially an order sanctioning expenditure in view of the desirability of the prosecution and although certain other considerations must also be borne in mind, neither they, nor the approved procedure suggests that the direction is a judicial order. It should be remembered that the Court can also give a direction 'suo motu' and in the case of such a direction, the question of a judicial procedure is even less pertinent. The Court obviously gives the direction in such a case in the course of its administrative supervision of the liquidation proceedings.
22. I may digress here a little to observe that certain statements in Palmer's Company Precedents appear to me to require explanation. The present edition which is the sixteenth was published in 1952 and purports to be adapted to the Act of 1948. That Act, as I have already pointed out, enacted in Section 334 what was contained in Section 277 of the Act of 1929, but the new section does not contain any provision for the Court directing the liquidator himself to prosecute. All that Section 334(1) says is that
'the Court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator to refer the matter in the case of a winding up in England, to the Director of Public Prosecutions, and, in the case of a winding up in Scotland, to the Lord Advocate.'
Sub-section (2), which corresponds to our Section 237 (2) and deals with voluntary liquidation, requires the liquidator to report the matter forthwith to the authorities mentioned in Sub-section (1).
Yet the 'Precedents' contains at p. 604 the statement that the Court 'can act on its own initiative and direct a prosecution' and in support of the statement, reference is made to Section 334 (1). At p. 605, Form No. 652 gives the form of a summons for leave to prosecute and contains the prayer that the applicant 'may be at liberty to institute and conduct a prosecution of A. B.' At p. 607 Form 654 gives the Form of an order, giving leave to prosecute and contains the statement that 'upon the application by summons -- of H, theliquidator of the F. Co. --it is ordered that theapplicant H be at liberty to prosecute G, the latesecretary of the said association'
Reference is again made to Section 334. Without further explanation, it is not possible to see how these forms and statements are consistent with the new section which contains no provision for the Court directing a prosecution or its directing the liquidator himself to prosecute.
23. Reverting to the points urged by Mr. Chaudhuri, he referred to Form 652 at p. 605 of Palmer's Company Precedents which asks for an order that the applicant
'may be at liberty to institute and conduct a prosecution of A. B. for certain offences committed by him in relation to the above-named Company' and the comment of the author that 'the order will not be made in such general terms as those of the summons.'
Mr. Chaudhuri contended that the order made in the present case to the effect that 'the applicant be at liberty to take such civil or criminal proceedings as he may think necessary over the report of etc'
offended against the above rule and was not a valid order under Section 237 (1) in any event. It would certainly have been better if the order were narrower in scope and more specific, but I am unable to agree that it must be held to be bad for vagueness or for being too wide in character.
Another form in Palmer, Form 654 set out at p. 607, on which Mr. Chaudhuri also relied and which gives the form of an order for leave to prosecute, authorises the liquidator to prosecute 'in respect of all or any of the defalcations in the petition referred to' meaning thereby the liquidator's application by summons. It is to be noticed that the order does not specify the items of defalcation to be selected for the purpose of the prosecution but leaves it to the liquidaor or his legal advisers to choose them. Again, it does not direct the liquidator to prosecute, but merely gives him liberty to do so. I do not therefore think it correct to say that the order made in the present case cannot be regarded as a valid direction under Section 237(1).
It must certainly be proved, as was observed by the Privy Council in -- 'Gokulchand Dwarkadas Morarka v. Emperor' , which was a case of a sanction under a law expressed in very stringent terms, that the sanction was given in respect of the facts constituting the offence charged and that if the facts did not appear on the face of the sanction, which was desirable, it should be proved by extraneous evidence that they were placed before the sanctioning authority. There can be no question in the present case that the relevant facts were all placed before the Company Judge, because they are all set out in the report of Adhikary and the affidavits annexed thereto to. which the order expressly refers and with reference to which the liberty to bring legal proceedings was expressly given. In view of those circumstances, it is impossible to say that the Company Court had not before it all the facts on which the prosecution is based or that it did not apply its mind to the considerations relevant to Section 237(1).
It appears to me to be clear that the Court formed the opinion that institution of legal proceedings by the liquidator against the Petitioners was called for and it only left the form of the proceedings to the liquidator, saying specifically that criminal proceedings also could be initiated. I am therefore unable to hold that as an order under Section 237(1), the order of the 22nd July can properly be challenged as invalid, either on the ground of indefiniteness or as embodying no direction by the Court, although I am free to confess that the order might have been expressed in a much better form.
24. The last question involved in the Rule is whether, assuming that permission of the Court was required in law, the general sanction under Section 179, given on 15-1-1951, was sufficient authority for the proceedings, even if the order of 22-7-1937 was bad as an order under Section 237(1). It was ob-jected on behalf of the Petitioners that the Official Liquidator was not entitled to rely on the order made under Section 179, because he had not done so before the trial Court. But it appears that in para. 8 of their petition, the petitioners themselves alleged it as a ground of the invalidity of the proceedings that no sanction under Section 179 had been or could be obtained and that allegation was traversed in para. 12 of the complainant's counter-affidavit where the order of 15-1-1951 was referred to and it was stated that in view of that order, it was not further necessary to have a direction under Section 237 (1). Reliance on the order under Section 179 is thus open to the Official Liquidator.
In the case of : AIR1953Cal153 , it was held by a learned Judge of this Court that neither Section 179, nor Section 237(1) had anything to do with the validity of a criminal prosecution instituted by a liquidator, but if authorisation by the Company Court was at all required for the validity of such a prosecution, the liquidator could validly institute any prosecution without further reference to the Court if he had a sanction under Section 179, provided the sanction was in unrestricted terms. I am inclined to agree in that view. It was contended by Mr. Chaudhuri that an order under Section 179 only authorised the liquidator to use the name of the Company. That view of the section does not appear to be correct, because there are several clauses in the section which have nothing to do with the use of the Company's name but deal with specific powers of the liquidator to do certain specific acts. Clause (a) of the section should therefore be read as really empowering the liquidator to institute or defend legal proceedings, doing so in the name of the Company, provided he has the sanction of the Court.
The section is expressly concerned with the powers of the Official Liquidator, while Section 237 does not deal with the liquidator's powers at all, but deals with the power of the Court to give directions to the liquidator. Reading Section 237(1) with proper regard to its place in the fasciculus of the sections among which it appears, I am inclined to think that it is one of the special provisions which the legislature considered it necessary to enact for the proper punishment of persons who stood in positions of trust or advantage as regards the Company but had misused their position. The liquidator may proceed against them in the exercise of his own judgment under the authority conferred on him by a general order under Section 179, taut if he does not, the Court may direct him to do so, either of its own motion or upon being moved by a person interested in the winding up. The section only confers a special power on the Court to direct the liquidator to do what he had already ppwer to do under the general sanction and could have done in the exercise of that power. In such view of the section, there can be no question of a direction under it being required to validate a prosecution instituted by the liquidator.
It appears to me that as the section is expressed, it cannot properly be said to contemplate an application by the liquidator himself for directions. The language is, 'the Court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator'. Under that language, I find it difficult to hold that the 'any person' contemplated by the section may include the liquidator himself, for, the person applying and the person to be directed on such application appear to be clearly different persons. I am aware that a practice of the liquidator himself applying for directions under the section has grown up both in India and in England and the reason may be that the liquidators have considered it safer to arm themselves with a special direction in order that there may be no difficulty about their getting the costs of the prosecution out of the assets of the Company. But even assuming, in view of the firmly established practice, that the liquidator also may apply under the section it is clear to my mind that the section is concerned only with the powers of the Court to direct the liquidator and is not intended to provide the liquidator with authority to institute a prosecution.
It follows that even assuming further that it is essential to the validity of a criminal prosecution by a liquidator that there should be a permission by the Company Court to institute the prosecution, there is no need to procure a direction under s. 237(1) when there is already a general sanction under s. 179. In my opinion, there is nothing to warrant the view that Section 179 (a) is limited to legal proceedings against outsiders.
25. It remains now to deal with the application. In my view, it has no merits at all. The petitioners contend that inasmuch as the Official Liquidator has commenced a proceeding under Section 235 in regard to the self-same matter, he cannot maintain the criminal prosecution at the same time which must accordingly be quashed. I cannot see why Section 235 provides that where any promoter or director or manager or liquidator or officer of a Company has misapplied its funds or committed any act of misfeasance or breach of trust, the Court may, on the application of the liquidator or of any creditor or contributory, examine into the conduct of the suspected person in order to compel him to repay or restore the money or the property concerned. The proceedings contemplated by the section are compensatory and not punitive. But still, if any embarrassment be caused to the petitioners by their having to account for monies or properties in respect of which they are being criminally charged, that may be a reason for their asking for the stay of the one or the other proceeding, but it can be no reason at all for quashing the criminal prosecution. I must not, however, be understood as saying anything one way or the other as to whether a stay of either proceeding should or should not be granted, if an application in that behalf is made.
26. For the reasons given above, I would discharge the Rule and dismiss the application.
P.B. Mukhabji, J.
27. This matter comes up as a criminal revision under Section 435 of the Criminal P. C. It relates to the affairs of the Bank of Commerce Ltd. which was directed to be wound up compulsorily by this Court on 7-8-1950. The Managing Director and Director are being prosecuted now before the Court of the Presidency Magistrate by the Official Liquidator of the Bank.
28. On 23-7-1952, a complaint was filed in the Court of the Chief Presidency Magistrate by one Jasoda Dulal Adhikary, the senior assistant in charge of the Bank in liquidation under the Official Liquidator against the applicants who were respectively the Managing Director and Director of the Bank. The complaint was filed for and on behalf of the Official Liquidator with an express authority from him. That express authority was also filed along with the complaint before the Chief Presidency Magistrate. The terms of that express authority given by the Official Liquidator being material are as follows :
'I hereby authorise Sri Jasoda Dulal Adhikary who is my seniormost assistant in charge of the above-named Bank in liquiadtion to lodge the above-mentioned complaint in my behalf and, to take all necessary steps in connection there--with.
M. M. Chakraborty,
29. The complaint charged the two applicants under Sections 120B, 403, 477 of the Penal Code and Section 282A of the Companies Act in respect of criminal misappropriation of Bank's funds to the extent of Rs. 1,25,000/-. The complaint recited the order of Banerjee J. dated 22-7-1952. This complaint was transferred subsequently from the Chief Presidency Magistrate to the Court of another Presidency Magistrate for disposal. No process has been issued under Section 282A of the Companies Act in this case and there is no pending prosecution under that section of the Companies Act. The charge under Section 282A of the Companies Act is therefore left out of consideration in the present proceedings.
30. The present stage of the prosecution is that no witness has yet been examined on behalf of the prosecution although summons and search warrants have been issued. The prosecution, therefore, has been held at bay for about two years now from 23-7-1952 until today. The applicants first appealed against the order of S, N. Banerjee J. of 22-7-1952 and obtained a stay from a Division Bench of this Court on 21-10-1952. With the dismissal Of that appeal on 10-3-1952 and the consequent discharge of the stay order the first stage of holding up the prosecution was over. The next stage of holding up the prosecution began immediately. The applicants filed a petition before the Presidency Magistrate on 9-5-1953 claiming their discharge on the ground that the petition of complaint was not maintainable as there was no order under Section 237(1) of the Companies Act, the Appeal Court having pronounced that the order of S. N. Banerjee J. dated 22-7-1952 being an 'administrative order' on concession by the Liquidator's counsel in appeal, no appeal could lie.
The trying Magistrate dismissed the petition of the applicants on 13-6-1953. The present application in revision for quashing that order of the Magistrate was moved before the High Court soon after on 29-7-1953 and an ad interim stay obtained as already indicated. The second stage of the hold up of the prosecution therefore continues. The application now comes up before us for final disposal.
31. In the present application before us the ap-plicants have taken five grounds : The first ground is that the proceedings before the Magistrate are without jurisdiction. The second ground is that the complainant Jasoda Dulal Adhikary has no locus standi' to file the complaint. The third ground is that the learned Magistrate erred in law in holding that sanction and direction from the Company Court were not necessary for the institution of the present criminal proceedings against the petitioners. The fourth ground is that the complainant having specifically relied upon the order of S. N. Banerjee J. and that order being admittedly an administrative order the present criminal proceedings on the basis thereof are unsustainable in law. The fifth ground is that the learned Magistrate should have held that the Official Liquidator was not legally competent to delegate his powers to his employee Jasoda Dulal Adhikary to sign the complaint.
32. The second and the fifth grounds relating to the competence of Jasoda Dulal Adhikary to file the complaint were not taken before the learned Magistrate but have been included in the present petition for revision before this Court.
33. Many important questions have been canvassed before us. On behalf of the applicants the main argument is that the complainant has specifically mentioned the order of S. N. Benerjee J. as giving the direction to prosecute the applicants. It is contended that this order is not in substance an order under Section 237 (1) of the Companies Act, and therefore there being no order under that section, this prosecution is invalid. The foundation of that argument is that there can be ho prosecution of the managing director or a director of a Bank in liquidation by the liquidator except by a specific direction under Section 237(1) of the Companies Act. Such direction is argued to be the condition precedent for launching any prosecution by the Liquidator against the managing director or a director.
That contention is attempted to be fortified by the argument that a Liquidator is entirely a creature of the Statute and he has no powers other than those conferred by the Statute and that the exercise of such powers is always circumscribed by the specific condition imposed by the Statute. The specific condition is contended to be a direction by the Company Court to the Liquidator to prosecute under Section 237(1) of the Companies Act.
34. It is therefore necessary to examine carefully Section 237(1) of the Companies Act. Sub-section 1 of Section 237 of the Companies Act is not a novelty of the present age. It has existed in the Indian Statute book ever since 1882 and is now more than 70 years old. It first appeared in Section 216 of the Companies Act of 1882. There was then however no provision for the alternative course which exists now of the Court referring the matter to the Registrar. But there was in the Act of 1882 the clearest provision almost in identical terms as those of today which permitted this Court to direct a Liquidator to institute a prosecution and to order that the costs of such prosecution should be paid out of the assets of the company. The inspiration for placing this provision in the Indian Companies Act of 1882 came from the English Companies Act of 1862 (25, 26, Victoria, Chapter 89).
Section 167 of the English Companies Act of 1862 is almost in identical terms with Section 216 of the Indian Companies Act of 1882. The historical background in England which marks the evolution of this idea of criminal prosecution of delinquent directors, officers or members of the company is provided by the general bankruptcy laws prevailing in that country. Subsequently the Statute intervened and by the earlier English Statute, the Joint Stock Companies Act 1844 (7 and 8 Victoria, Chapter 111), it was provided that after the Court certified to the Board of Trade the cause of failure of any company adjudged bankrupt, the Board was permitted to institute prosocution of directors or officers of the company. The Board at that time in England was known as the Committee of the Privy Council for Trade and that Committee used to lay the papers before the Attorney-General who was to direct whether any and what proceedings should be taken against a director or an officer of the company. If the Attorney-General, so directed the prosecution was conducted under the direction of the Commissioners of the Treasury. In other words the costs of the prosecution came out of the public exchequer.
But then no power was granted to the Civil Court exercising company jurisdiction to direct any prosecution. It was however in 1858 in the Joint Stock Companies Act 1858 (21, 22 Victoria Chapter 60) that the provision was first made in Section 20 thereof for the prosecution of delinquent directors by the Liquidators under the direction of the Court. This is the 'fons et origo' of the Civil Court's power to direct prosecution of delinquent directors. It is this Section 20 of the English Joint Stock Companies Amendment Act 1858 which is reproduced in Section 167 of the English Companies Act of 1862.
35. Section 167 of the English Companies Act of 1852 provides as follows :
'Where any order is made for winding up of a company by the Court or subject to its supervision, if it appears in the course of such winding up that any past or present director, manager, officer or member of such company has been guilty of any offence in relation to the company for which he is criminally responsible, the Court may on the application of any person interested in such winding up or on its own motion direct the Official Liquidator or Liquidators (as the case may be) to institute and conduct the prosecution or prosecutions for such offence and may order the costs and expenses to be paid out of the assets of the company.'
36. I set out below the first provision of similar nature in the Indian Companies Act of 1882 in order to show how exact a copy it is of the English Statute. Section 216 of the Indian Companies Act of 1882 reads as follows :
'Where any order is made for winding up of a company by the Court or subject to the supervision of the Court, if it appears in the course of such winding up that, any past or present director, manager, officer or member of such company has been guilty of any offence in relation to the company for which he is criminally responsible the Court may on the application of any person interested in such winding up or on its own motion direct the Official Liquidator or Liquidators (as the case may be) to institute a prosecution for such offence and may order the costs and expenses of such prosecution to be paid out of the assets of the Company.'
37. The English Companies Act of 1862 is pointed out by Palmer to be the Manga Carta of co-operative enterprise in England, and this provision for prosecution of delinquent directors by liquidators under direction of the Company Court as provided therein continued in the English Companies Consolidation Act of 1908 and in the English Companies Act of 1929. Section 237(1) of the Indian Companies Act of 1936 reproduces Section 277 of the English Companies Act of 1929 on this point.
In England however the Companies Act of 1929 was modified by the Statutes of 1947 and 1948. The main difference between the English and Indian Company Law on this point now is that while in the English Companies Act of 1862 the Court could direct the liquidator to prosecute and that provision was gradually modified until the present statutory position in England is reached where the Liquidator can no longer prosecute but is only directed by the Court winding up the company to refer the matter to the Director of Public Prosecutions in England or to the Lord Advocate of Scotland, the position in India has remained the same.
38. The reason for tracing the historical origin of prosecution of company directors by liquidators under direction of the Company Court in Company Jurisdiction and for my drawing the parallelism between the English Company Law and the Indian Company Law oh this point is . not for the purpose of unearthing any legal antiquity but for the more practical purpose of drawing support for the construction of Section 237(1) of the Indian Companies Act with reference to at least one very important English decision on the same point.
39. The main reason for endowing the Civil Court winding up the company with the power to direct the liquidator to prosecute lies in what Buckley J. said in 1903 in -- '1903-1 Ch 728 (G) :
'The apathy of the public in setting the law in motion has at least failed to repress grievous frauds which have been committed and too often gone unpunished.'
40. Section 179 of the Companies Act enumerates the powers which the Official Liquidator shall have with the sanction of the Court. Amongst such powers is the power to institute a prosecution in the name and on behalf of the company as provided in Sub-section (a) thereof. To override such public apathy and to bring company directors to book a specific power was given to the Court winding up the company to direct the liquidator to institute prosecution because under the general powers under Section 179(a) of the Companies Act the risk of launching a prosecution was hardly ever taken by the liquidator. What was therefore in origin intended to be an additional and supplementary provision enabling the Company Court by its direction to ask the liquidator to launch prosecution of offending directors is now argued to be the very condition precedent for launching of any prosecution at all against such offending directors. The argument therefore raises a challenge of very far-reaching consequence and appears to be belied by the whole history and the origin of this section.
41. Coming to the interpretation of Section 237(1) of the Companies Act with reference to the language used therein I am of the opinion that under this provision the Court is not obliged to make the order directing the liquidator to prosecute. A marked difference in procedure is made in Section 237 of the Act between the case of compulsory winding up by the Court, or winding up under the supervision on the one hand, and the case of voluntary winding up on the other hand. The word used in this Sub-section (1) of the Act in 'may'. This word 'may' in this sub-section is not, in my view intended to be construed as 'must' or 'shall'. In the other Sub-sections like Sub-sections 4 and 6 of this very Section 237 itself the legislature has used the word 'shall' where it wanted to make any action obligatory. Therefore the word 'may' in Sub-section (1) of Section 237 of the Companies Act must be construed as only an enabling or permissive provision. Neither by its general implication nor by its exact. terms nor by the historical origin does Section 237(1) of the Companies Act suggest that without a direction as contemplated therein a liquidator cannot prosecute a managing director or a director.
The reason for this enabling provision is that the Civil Court winding up a company is most likely to discover in the process of liquidation offences in relation to the company for which there may be criminal liability. It is therefore a wholesome provision which makes it possible for a Court to permit in the course of a winding up by the Court to direct the liquidator to prosecute a director or officer. To say that such provision is to grant the offending directors an immunity from being prosecuted otherwise is to my mind to turn the provision upside down and then so mutilate it as to read that no director or managing director shall be prosecuted except without a direction from the Court. I am unable to accede to such a construction of Section 237(1) of the Companies Act.
42. There are many other reasons why the direction under Section 237(1) of the Companies Act cannot be regarded as a condition precedent to the validity of a prosecution of an offending director by the Official Liquidator. In the first place it is not the language of Section 237(1) of the Companies Act that such a direction or, which has also been argued as sanction, should be 'previous' to the prosecution as to make a prosecution without it invalid. In the second place although Section 179(a) of the Companies Act provides that the Official Liquidator shall have power with the sanction of the Court to institute a prosecution in the name and on behalf of the company, the very following Section 180 of the Companies Act proceeds to say that the Court may provide by any order that the Official Liquidator may exercise such power without the sanction or intervention of the Court. The intention therefore of the Companies Act on this point is clear that the sanction of the Court for prosecution by the liquidator is a matter entirely between the Court and its liquidator and is not a condition which is indefeasible but which can be dispensed with by the Court.
It therefore cannot affect the validity of a prosecution launched by the liquidator as between the liquidator as the complainant and the accused because of the dispensable nature of the direction or sanction of the Court referred to in the Companies Act in this matter. If the Court can dispense with its own sanction under Section 180 of the Companies Act then such sanction cannot be regarded as part of the competence of the prosecution. The matter can be pursued still further. Section 183(5) of the Companies Act expressly provides that if any person is aggrieved by any act or decision of the Official Liquidator that person may apply to the Court and the Court in that event may confirm, reverse or modify the act or decision complained of and make such order as it thinks just in the circum-stances. No such step was taken by the applicants to move the Court which made ths order complained of empowering the liquidator to launch a prosecution. The Companies Act in Sub-section 5 of Section 183 expressly provides this remedy to the applicants which they did not choose to avail of.
What they did was, as I have already indicated, to appeal from this order which was passed 'ex parte'. The point of drawing attention to Sub-section 5 of Section 183 of the Companies Act however is that the sanction or leave of the Court is not an . irretrievable act. I need only add that Sub-section 3 of Section 183 of the Companies Act gives complete liberty to the Official Liquidator to apply to the Court for directions in relation to any particular matter arising in the winding up. Not only is this liberty given but by Sub-section 4 of Section 183 of the Companies Act it is provided that subject to provisions of the Act the Official Liquidator shall use his own discretion in the administration of the assets of the company and in distribution thereof among creditors. It may be a moot point whether it is not a part of the good administration to try to recover misappropriated funds of the company and further to prosecute the offending directors for that purpose and whether the Official Liquidator should not have the discretion to act in the manner that he thinks best, subject always of course to the control by the Court and; to the provisions of the Statute.
43. In the third place a reference to the language of Section 237(1) of the Companies Act makes it clear that it is limited to the specified persons mentioned in the sub-section namely, past or present director, manager or other officer or any member of the company. It is illogical in the context of Section 237(1) to speak of a 'present director' as this sub-section does, because there can be no present director in the course of a winding up-by the Court. But the fact that Section 237(1) limits its operation to these specified persons cannot be used to control or restrict the unqualified language used in Section 179(a) of the Companies Act by limiting Section 179(a) of the Act only to outsiders or to persons other than those mentioned in Section 237(1) of the Act. This decision is necessary because of the view that I take in this case that the general order under Section 179(a) here is good enough authority for the prosecution and the complaint.
In my opinion Sections 179(a) and 237(1) of the Companies Act are not exclusive of each other in respect of persons against whom prosecution can be launched and the one is not to be considered with reference to the other in respect of persons who can be prosecuted. They belong to different levels of statutory powers operating in different fields. In Section 179(a) of the Companies Act the liquidator shall have the power to prosecute with the sanction of the Court whereas in Section 237(1) it is the Court winding up the company who can direct the liquidator to prosecute. One is the liquidator's power which may be exercisable with the sanction of the Court and the other is the Court's power to direct the Liquidator to . do a particular act. Therefore the fact that under Section 237(1) of the Act the Court can direct the liquidator to prosecute a director, manager, officer or member of a company cannot mean that the liquidator cannot prosecute them under Section 179 (a) of the Companies Act independently of Section 137(1) thereof.
44. It will be best to dispose of here at this stage an important argument as to the nature of the Court's order for direction under Section 137(1) of the Companies Act. The words used in Section 237(1) are 'if it appears to the Court' that any of the persons specified therein 'has been guilty of any offence in relation to the company for which he is criminally liable'. These are pregnant words which express to my mind the nature of the direction for prosecution which the Company Court gives. Each of these expressions 'appears to the Court', 'offence in relation to the company', 'guilty' and 'criminally liable' must receive its due significance when the Court acts under this section. The question in this context is not so much whether it is an administrative order or not under Section 237(1). In one sense when the Court administers the assets of a company in winding up the whole process is one of administration. The nature of this direction under Section 237(1) of the Companies Act is not determined by any speculation whether it is an administrative order or a ministerial order or a judicial order but by examining the actual words used in that section.
The relevant words of this sub-section which I have just cited required that it must appear to the Court that the person has been guilty of an offence in relation to the company for which he is criminally liable. In other words, the Courts must look into some records of facts from which it can be said to appear that the person has been guilty of an offence for which he is criminally liable. The Court has to look at the question not with a view to find out that the facts are so conclusive that the conviction must follow but the Court must be able to say that it appears to it that such an offence has been committed by the person for which he is criminally liable. It is not in my view required that the Court acting under Section 237(1) should come to any conclusive finding that the person 'is criminally liable'. What is required is that it must 'appear' to the Court that he is criminally liable. The word 'appear' in this Sub-section (1) of Section 237 qualifies not only the word 'offence' but also the words 'is criminally liable'.
I am of the opinion therefore that to give a direction under this subjection it is not necessary to hear the person complained against. The language of Sub-section (1) of Section 237 of the Companies Act expressly says that the Court may even more (sic, hear?) under this section on its own motion and not only on the application of any person interested in the winding up. To hear the director or officer or member complained against when the Court is acting under Section 237(1) of the Companies Act may indeed be most embarrassing and unfair to such person because in that event he will have to disclose his evidence and. case on affidavit or otherwise before trial, a course which may seriously prejudice his position at the prosecution if it is ultimately directed under Section 237(1). That is why such direction under Section 237(1) is usually 'ex parte', so far as the delinquent director, officer or member of the company is concerned. It is also the practice in England as pointed out in the notes on Form 655 of Palmer's Company Precedents, 5th Edn. Part II at p. 658.
45. In my opinion Section 237(1) of the Companies Act cannot be so interpreted as to convert the Company Court into the Court of a Committing Magistrate and it will be improper and in my view unjustifiable to interpret Section 237(1) of the Act so as to require that before any direction is given (1) the Court must hear the party complained against, or (2) that it must follow the trappings of formal procedure of notice, hearing argument and formal recording of evidence. In my opinion the Court under s. 237(1) of the Companies Act is not required to act as a committing court. It follows from this view that the Court can act 'ex parte' under Section 237(1) of the Companies Act.
48. It will be appropriate in my view to remember some of the guiding principles laid down by Buckley J. in -- '1903-1 Ch 728 (G)'. In my view those principles are equally applicable to the construction of Section 237(1) of the Companies Act because the learned Judge was there construing Section 167 of the English Companies Act of 1862 which as I have already indicated is in 'pari materia' with Section 237(1) of the Indian Companies Act. Buckley J. observes in that case that the Court will look at the question from the point of view of an individual and will consider whether it would be the duty of a good citizen even at a loss to himself to institute the prosecution. That is one of the considerations which will move the Court to give a direction to the liquidator to prosecute.
That learned Judge also lays down the proposition that it is not necessary to find that the facts are so plain that a conviction must ensue. Thirdly the Learned Judge lays down that the wishes of the creditor are not decisive on the point whether the Court should direct the liquidator to prosecute or not; nor is the fact that the Public Prosecutor has declined to prosecute decisive against an order for prosecution upon the liquidator by the Court winding up the company. Lastly Buckley J. observes that it is not essential that the pecuniary benefits should result to the creditors arid share-holders, although no doubt the Court is normally unwilling, when the assets are too small to sanction prosecution which may swallow up or most disproportionately reduce such meagre assets.
Reading these principles it is clear that the question whether the Court should direct the liquidator to prosecute under Section 237(1) of the Companies Act has to be determined not so much by reference to the wishes of creditors or shareholders or by considerations of pecuniary benefits of the share-holders or even by consideration of the fact that the State has refused to take up the prosecution, although, none of them can be regarded as irrelevant. It is a power given to the Court which the Court must exercise by application of its own mind to the materials before it and so long as it appears to the Court that the persons specified in the section are guilty of an offence in relation to the company for which they are criminally liable, that is enough for the Court to act. But the Court cannot substitute its own responsibility in the matter by shifting it either to the creditors or to the shareholders or to the State. How it appears to the Court is not the point of emphasis.
It may appear by the Court being moved by any person interested in the winding up or it may appear on Its own motion. But the point of emphasis is that it must appear to the Court. These in my view are the main considerations which should guide the Court in directing the liquidator to prosecute under Section 237(1) of the Act and a proper direction thereunder should specify the person to be prosecuted.
47. Lastly, pursuing the reasons why a direction under Section 237(1) of the Companies Act cannot be regarded as a condition precedent to a prosecution by the Official Liquidator, it is necessary to enquire what power if any is there in any of the sections of the Companies Act which can be said to prevent a liquidator to file a complaint & to prosecute the managing director or a director of a company in the process of being compulsorily wound up by the Court. An examination of the various sections of the Companies Act bearing on this point shows that there is no section which provides such a legal bar to the liquidator. Mr. Choudhury therefore builds up an argument that because the liquidator is a creature of the Statute therefore he cannot launch a prosecution except in accordance with the powers conferred by the Statute. This argument would have been of considerable force if the solution of this problem depended entirely on the Companies Act. But this argument has to be examined both from the point of view of the Penal Code read with the Criminal P. C. as well as from the point of view of the Companies Act.
48. The charges, under the Penal Code relate to criminal conspiracy, criminal breach of trust, forgery of valuable security and falsification of accounts. Now under Section 4(1)(h) of the Criminal P. C. a complaint means the allegation made orally or in writing to a Magistrate with a view to his taking action under that Code that some person has committed an offence. The complaint in this case satisfies that requirement. Neither the Penal Code nor the Criminal P. C. contains any prohibition as regards the person who can make such a complaint. Anyone can file a complaint so far as the criminal laws in this country are concerned. Judged by that test of the Criminal P. C. a liquidator of a company is therefore neither an incompetent nor a disqualified person to file a complaint. Section 5(1) of the Criminal P. C. makes it plain that all the offences under the Penal Code shall be investigated, enquired into, tried and otherwise dealt with according to the provisions of the Criminal P. C.
In so far therefore the present complaint relates to charges under the Penal Code, the Criminal P. C. expressly provides for their trial or investigation or enquiry according to the Criminal P. C. As the Criminal P. C. does not debar a liquidator of a company to file a complaint no exception on that ground in my judgment can be taken to the compiaint charging the applicants with offences under the Penal Code and claiming for their investigation, trial or enquiry under the Criminal P. C.
49. It is not the intention of the Companies Act to exclude the operation of the Criminal P. C. This conclusion will be plain when I show that even for offences under the Companies Act, the Criminal P. C. is attracted. It is necessary in this connection to refer to Section 5(2) of the Criminal P. C. which provides that all offences under any other law shall also be investigated and enquired into, tried and otherwise dealt with according to the provisions of the Criminal P. C. but subject to any enactment for the time being in force regulating the 'manner' or 'place' of investigating and enquiring into, trying or otherwise dealing with such offences. This provision in the Criminal P. C. makes it clear that even for offences under a special enactment and not under the Penal Code they will be subject to the Criminal P. C. except as to the 'manner' or 'place' as provided in the special enactment. That section, however, does not itself provide for 'regulating the manner or place of investigating, enquiring into, trying or otherwise dealing with' such offences.
For that purpose reference has to be made to Section 278 of the Companies Act which specifies the Courts which are to try offences under the Companies Act and whether such offences are to be treated as cognisable or non-cognisable offences. Sub-sections (1) and (2) of Section 278 of the Companies Act, therefore, provide the special enactment regulating the 'place' of investigation and trial within the meaning of Section 5(2) of the Criminal P. C. Subjection 3 of Section 278 of the Companies Act expressly makes all offences under the Companies Act non-cognisable offences under the Criminal P. C., and thereby regulates the 'manner' of investigation or trial within the meaning of Section 5(2) of the Criminal P. C.
Reading the entire scheme of Part 11 of the Companies Act dealing with legal proceedings for offences under the Companies Act it appears to be clear that the only departure intended to be made for trial of oifences under the Companies Act is first by limiting their trial before the Courts of the Presidency Magistrate or a Magistrate of first class and secondly by making them all non-cognisable offences under the Criminal P. C. itself. Sub-section 3 of Section 278 of the Companies Act by expressly providing 'notwithstanding anything in the Code of Criminal Procedure, 1898, every offence against this Act shall for the purpose of the said Code be deemed to be non-cognisable', read with S 5(2) of the Criminal P. C. has by necessary and irresistible implication attracted the entire machinery of the Criminal P. C. applicable to non-cognisable offences thereunder.
If that is the position for special offences under the Companies Act, as I have shown it is, it will be idle to contend that it should be different when the offences are not under the special enactment of the Companies Act but under the Penal Code.
50. Judged by this view of the Criminal P. C. and the Companies Act the complaint in this case suffers from no legal defect either on the ground that the complainant was not a proper and competent person or on the ground that such a complaint requires any prior sanction of the Company Court under Section 237 (1) of the Companies Act or under Section 179(a) of the Companies Act. Authorities like -- 'AIR 1937 All 714 (D)'; -- ' : AIR1953Cal153 ' and -- ' : AIR1953Mad595 , support the same conclusion.
51. This conclusion is in accord with the viewsexpressed by the House of Lords in -- '1914 AC823 (H)', construing &. 151 of the Companies(Consolidation) Act 1908 (8 Edward VII C. 69)which enabled a liquidator to bring or defendlegal proceedings with the sanction of the Court.That decision is that it does not confer on thirdparties any right to object to such proceedingson the ground that no such sanction has beenobtained. Its only effect is that the liquidatorexposes himself to the risk of having to pay thecosts personally. See the arguments before theHouse of Lords at p. 828 of the Report and thespeech of Lord Parker at pp. 859-60 of the sameReport.
52. For these reasons I hold that it is not necessary for the Official Liquidator of a company which is being wound up by the Court to be fortified with a direction of the Court under Section 237(1) of the Companies Act or by an order under Section 179(a) thereof, in order to prosecute a managing director or director of such company in liquidation in respect of charges under the Penal Code. I, therefore, hold that the complaint in this case is competent without such direction under Section 237(1) of the Companies Act or without any order under Section 179 (a) of the Companies Act.
53. The contention put forward by the applicants that the complaint is bad on the ground that instead of the Official Liquidator himself signing the complaint he . has authorised the senior assistant of his department, is of no force. I have set out elsewhere in this judgment the terms of that authority which expressly stated that the person being the senior assistant in charge of the Bank in liquidation was authorised to file the complaint on behalf of the Official Liquidator and to take all necessary steps in connection therewith. That original authority is annexed to the very complaint itself filed before the Magistrate. I, therefore, read it as a complaint by the Official Liquidator. It is not a case of any delegation by the Official Liquidator of his statutory duties. The act of filing the complaint in this case remains the act of the Official Liquidator.
No statutory function of the Official Liquidator is being delegated by authorising his assistant to sign the complaint under an express authority from him. What the assistant has done is to perform only a ministerial act and not usurp any statutory duties or obligations of the Official Liquidator. It is at best an objection of form and not of substance and even as an objection of form it is devoid of any merits in the facts of this case,
54. It now remains to refer to certain facts in the case which in my opinion make the complaint also unexceptionable, quite apart from the question of law just discussed.
55. The order of the Company Judge of this Court dated 15-1-1951, in this case is a complete authority under Section 179(a) of the Companies Act to permit this prosecution by the Official Liquidator. It is true that the complaint itself does not recite this order. I am of the view that if the complaint can be supported legally by any order other than the one mentioned in the complaint itself, the complaint cannot be thrown out because it was not recited in the complaint. In my judgment no recital of any order of authority in the complaint itself is technically necessary, although it is always desirable. If the applicants want to challenge the complaint on the ground of legal authority, it is for them to show that there is absence of any requisite legal authority and for that purpose the Court can look into and examine the orders of the Company Courts duly passed even though such orders of the Company Courts are not mentioned before the Magistrate.
In this case although this order of Bachawat J. was not referred to in the complaint, it finds reference in the counter-affidavit filed before us in this revision application. It is, therefore, all the more proper for this Court to take judicial notice of the Company Court's orders. It cannot be over-emphasised that in an application for quashing, the matter is mainly, if not entirely, between the applicant and the court.
56. On the facts, therefore, of this case, I also hold that the complaint is valid and competent and fortified by the order of the Company Judge, dated 15-1-1951 and passed under Section 179 (a) of the Companies Act.
57. One other short point in the argument advanced on behalf of the applicants remains to be noticed. It is argued by Mr. Chaudhuri for the applicants that because the Official Liquidator has also commenced misfeasance proceedings under Section 235(1) of the Companies Act in respect of the same facts, the criminal prosecution initiated by the complaint should be quashed. This argument is unsound. Proceedings under Section 235(1) of the Companies Act are for reparation in money or property for what is in the nature of a delict or a civil wrong in jurisprudence and thus represent a notion very distinct from a criminal prosecution. The law clearly contemplates and permits both proceedings under Section 235 (1) and a criminal prosecution by reason of the express provision of Section 235(2) which lays down
'This section shall apply notwithstanding that the offence is one for which the offender may be criminally responsible.'
In the face of such express and clear statutory provision I am unable to hold that subsequent initiation of proceedings under Section 235(1) of the Companies Act renders a prior pending criminal prosecution invalid or liable to be quashed. For the same reason I do not wish to say that as between a criminal prosecution and a proceeding under Section 235(1), one can be stayed in preference to the other.
58. I agree with my Lord the Chief Justicethat the Rule should be discharged and the application dismissed.