Dr. SAILENDRA NATH SINHA & Anr. v. JASODA DULAL ADHIKARI & Anr.

On Aug~st 5, 1953, the official liquidator took out ruisfeasancc proceedings under s. 235 of the Companies Act. and the appellants then applied to the High Court for quashing the criminal proceedings already started on the ground of commencement of proeeedu1gs under s. 235. This application was also heard with the rule which was issued on June 29, 1953, and it wa• dio misscd by the same judgment by which the rule was di•charged, i.e., of .June 21, 1954. The general schPme of the Companies Act is that the Court should have complete control of all proceed . ingH in winding up and it was therefore urged that the official liquidator was not authorised to do anything either witlwut t.he sanction of the Court or without its di'rectiouH. Section l iO deal; with the powers of official • liquidator. It provides: • • • • • • •.. • S.C.R. SUPREME COURT REPORTS 1267 "The offi1iial liquidator ·shall have power, with '958 the sanction of the court, tei dq the fo!lowing things: Dr. Sailendra Nath (a) to institute or defend any suit <tr prosecution Sinha & Anath" v. J asada Dulal Adhikari"' Another Kapur]. or other legal proceeding, ci vii or criminal in the name and on behalf of the company ; ............ ". Under s. 180 the Court may provide that the ~tficial liquidator may exercise any of the powers given under s. 179 without the sanction or intervention of the Court. Section 183 deals with the exercise and control of liquidator's powers. Sub-section 3 authorises him to apply to the Court for directions in relation to any particular matter arising in the winding up. Sub- section 4 is a provision under which the official liqui- dator is entitled to use his own discretion in the administration of the assets of the company and in the distribution amongst the creditors. Sub-section 5 provides: "If any person is aggrieved by any act or decision of the ofiicial liquidator, that person may apply to the CQurt and the" Court may confirm, reverse or modify the act or decision complained of, and make such order as it thinks just in the circumstances ". T!J.ese provisions show that• s. 179 deals with powers of the liquidator. Under s. 235 the Court has the pow~ to assess damages against delinquent directors and the Court may on the application of the liquidator or a creditor or a contributory examine into the conduct of a director and compel him to pay or restore money or property or to contribut~ such sum to the assets of the company by way of compensation in respect of any misfeasance on his part and this power may be exercised irrespec tive of the criminal liability of the director. Section 237 · deals with prosecution of delinquent directors and the relevant. portion of this section is : (1) "If it appears to the Court in the course of a winding up by, or subject to the supervision of; the Court, that any past or present director, manager or other officer, or any member, of the cmppan,y has been guilty of any offence in relation to the company for which he.is criminally liable, the Court may, either on • 161 • • • .. • • 1268 SUPREME COURT HEPORTS [1959) i9:;8 the application of any person intereste<l"in the winding d N h up or of itll own motiolJ'. direct the li11uidator either •h t c ouen er or to refer . . 1 5 D '" '" '" ai I . Sinha & A>iolher Hmse '· to :i:wosecute "" d 1 f v. Jasoda Dula/ Adhihari 6- Another J(apur J. matter to the registrar. (2) If it appears to the liquidator in the course of a voruntary winding U!J that any past or present director, manager or other officer, or any member of the company has been guiJt.y of any offence in relation to the company for which he is criminally liable, he shall forthwith report the matter to the registrar and shall furnish to him such information and give to him such access to and facilities for inspecting and taking copies of any documents, being information or docu ments in the possession or under the control of the liquid11t-0r relating to the matter in question, as Jie may require. (3) Where any report is made under sub-section (2) t-0 the registrar, he may, if he thinks fit, refer the matter to the Central Government for further enquiry, and the Central Government shall t.hemupon inYcsti gate the matter and may, if they think it expediei1t, • apply to the Court for an order conferring on any person designated by thf Central Government for the purpose with respect to the company concerned ttll such po, rnrs of investigating the affairs of the company as are prov1ded by this Act in the case of a winding up by the Court. (4) If on any report to the registrar under sub s. 2 it appears t{) him that the case is not one in which proc(.,>edings ought to be taken by him, he shall inform the liquidator accordingly, and thereupon, "subject to the preYious sanction of the Court, the liquidator may himself take proceedings against the offender. • (5) lf it appears to the C-0urt in the course of voluntary winding up that any past or present director, manager or other officer, or any member, of the company has been guilty as aforesaid, and that no report with respect to the matter has been mado by tho liquidator to the registrar, the Court may, on the a11plicatio1\ of iruy person interested in the winding up • or of its' own motion, direct the liquidator to make such a. report! an~ on a report being made accordingly, • • • .. • • S.C.R. SUPREME COURT REPORTS 1269 the provisions• of this section shall have effect as thou~~ the report has _been• m~e in pursuance of the Dr. S«ilendra Nath prov1s10ns of sub-sect10n (2). Sinha &· Another v. Jasoda Dula/· Adhikari & Another Kapur J • . r958 (6) If, where any matter is reported or referred to the registrar under this section, he considers that the case ill one in which a prosecution ought to beo insti- tuted, he shall place the papers before the Advocate-. General or the public prosecutor and if advised to do so institute proceedings : Provided that no. prosecution shall be undertaken without first giving the accused person an opportunity of making a statement in writing to the registrar and of being heard thereon. ,, I~ was this section which the appellants pressed in support of the argument that without the order of the Court the official liquidator cannot lodge.a criminal com plaint against a past director and if he does so the proceedings will be ab initio void. All that sub-s. (1) requires is that if the Court finds in the course of winding up that any past or present director, etc., has been guilty of any offence in relation to the company t)le Court may either on the 1j.pplication of the person interested or of its own motion direct the liquidator to prosecute the offender or to refer the matter to the In the latter case if the registr~r finds that registrar. the prosecution ought to be instituted he can do so if advised by the Advocate-General or the public prose cutor. But emphasis was placed by counsel for the appellan1<,s on the proviso that no prosecution could be· undertaken without first giving the accused person an opportunity of making a statement to the registrar or of being heard and it was urged that if the registrar cannot institute prosecution without first giving an opportunity to the person accused to file an explana tion, no directions could be given by the judge unless the pfirsons accused are first allowed an opportunity of giving an explanation. But this contention must be repelled. Under s. 237 (1) the Court may direct the thA offender or· to liquidator to himself prosecute refer th~ matter. to the registrar. Giving an oppor-. tunity to the offender before such direct.ion is given by .. • • • .. .. • 1270 SCPRE:ME COURT REPORTS [Hl59) • . d t , , ""'"''•" <? tho Court is not a prerequisite of the 8" udgc making r938 . - • h an order under sub-s. (1). Umler 8ub-s. (6) the regist.rar I». s.,,,.,d.,. .~·at . 1s reqmre o give t 1c 011cn er an opportumt v to s 10w , A 1, 110 ner cause before a prosecution is undertaken. That is a v. far step from saying that s. 237(1) of the Compani"s Act requires a Judge t<J giYc the offender an oppor- tnnity before he gires a direction for prosecution hy the liquidator or for reference to the registrar. Jasoda liulal AJMk•" • e> Anolh" tr d I l · . J /{ap11r j. It was further urged that under sub-s. (4) in the case of voluntary liquidation, the liquidator has to proceed after obtaining the sanction of the Court and therefore it was urged that the liquidator cannot institute criminal proceedings without such sanction in the case of winding up by tho Court. Whatever may be the case of a liquidator under voluntaPy winding up sub-s. (1) of s. 237 makes no s11ch pro. vision in the case of compulsory liquidation. Our att{)ntion was drawn t.o 8ome passages from the ] ndian Companies Act hy Sircar & Sen, 1937 Editio11. At page 624 it is stated that the object of the section is to provide against abuses and indiscriminate commence. ment of prosecutions and also for the first time a provision has been made ,under this sect ion for proscc11- In 'a tions being conducted as crown prosecutions. passage at page 628 it is stated: "But before the Court can exercise its jurisdiction it must come to the conclusion that in the course of winding up the person intended to be charged under this section has been guilty of an offence in relation to the company for which he is criminally li!lble. But such a finding is not to prejudice tho accused i11 any way in his trial. Per Chitty J. in re Charles Denham & Co. Ltd. L.T. 570 at 571." The procedllre under s. 237(1) as stated in this Look at the same page is as follows : "The application should be made on a petition ,·erified by an affidavit in which materials must lie set out sufficient to make out a prima facie case. • It is m;1t quite settled as to whether the liquida tor sho!Md make the application upon notice to any 'one. Generally the application shoulti be ex parte, but • • • • • S.C.R. SUPREME COURT REPORTS 1271 • r958 the Court may•direct notice to be given to any person who is in its opinion entitled oo be heard ". d N h These passages do not support the content10n t at Sinha & Anoth" before a prosecution can be validly instituted against a past director the sanction of the Court is necessary. Mr. Chaudhuri then relied on an observatitm of Buckley J. In Re London and Globe Finance Corpora- tion(') also quoted in Sircar & Sen's book at page 625. There the principles guiding the Court in ordering pro secutions have been laid down as follows: v. }•soda Dnlal Adhikari & Another . 1 r. ai en ra Kapur]. h . D 5 "I have next to consider upon what principles I ought to exercise the power given me by s. 167 of the Companies Act, 1862, to direct the official receiver to institute and conduct a prosecution at the expense of tb.e assets. It is obvious that no one legitimately can or ought to institute a criminal prosecution with a view to his personal profit. Neither should a prosecu tion be instituted from motives of vengeance against the offender. The motive of every prosecution ought to be to inflict punishment upon the criminal for the proper enforcement of the law and for the advantage of the State and with a view to deter others from doing the like ". This passage does not support the giving of an oppor- tunity to the offender before the Judge can give direction nor do they affect the powers of'the liquida tor to start a prosecution or the criminal court. to entertain a complaint when filed by the liquidator. • • The following passage from Buckley's Company Law und~r the commentary under s. 334 of the English Companies Act, 1948, which corresponds to s. 237 of the Indian Companies Act was then referred to : · " Proceedings will accordingly be taken by the Director of Public Prosecutions (or Lord Advocate) or not at all ". But this is because of the peculiar and express language of s. 334 under which the Judge can only direct the liquidator to refer the matter to the Direc- tor of Public Prosecutions or to Lord Advocate as the In the English Act, specfal ,proviflion case may be. has bee11 made f"r England saving the institution oL (r) (1903) r Ch. 728, 733· • • • • 1272 SUPRE.ME COGRT REPORTS (1959] D 0 / r'..lOltn•1u n·11/1~ .1 ,. criminal proceedings by private prose~tors. l\Icrcly 1 because no such provisi"n lrns been made in regard to > 51,,r.a""' A•"'"" ,.cot. and docs not affect the argument. ] 1958 v Jusoda D1<fol 1lealing with Adh•kaoi {~ Ano""' J(af"" J. the mode of giving directions. l\Ir. Choudhuri then relied on certain English cases In re ll'o!thern Counties Bank Limited(') the ,Judgll had ordcrcd t.he liquidator to ascertain by circular the wishes of the creditors and after they had appeared t-0 oppose the starting of the prosecution, it was held (!) that it did not sufficiently appear that the offoncp, had heen committed and (2) that as 2/3 of the creditors opposed the application the prosecution should not be ordered as expenses will have to be paid from out of the money belonging t-0 the credit-Ors. The main question for decision in that case was whether tlio prosecution should he at the cost and expense of the assets of the com pitny but com petcncy of the liquida tor to file the complaint was not in dispute. Reference was t.hcn made to Palmer's Company Precedents, 1952 Edition, Vol. II, again stating as to wher.leavc to pro secute should he given but the law stated there docs not support. the c1~se for the appellants. At page 605 it is stated : "The summon8 will be ex partc, and should l1e Hnpported by affidavit showing a strong case for pro secution, and a!Ao the extent of the assets and liabilities. The <"Ourt is not willing when the assets are small, to sanction proceedings which may swallow up or largely reduce those asset8 ". The form at p. 607 doeH not show that 11nder the English Companies Act whp,n liberty is given to pro secute the perso'i1 accused is heard. All that is rliqnired is that the court will make its order upon affidavits etc. filed before it and it c1tn also order that. the costs and charges incurred by the liquidator shall be paid out of the assets of the company . It was next eonu•ml<·d that although the l!111gunge of s. 237 was not in the m·gativc form still the effect of the wmds was thn.t 110 prosecution could he instituted without the" sanction of the C-0urt being obtained by In support of the st:bmissio\l counsel .the liquidator. (•I ltH83l 31 ~'.R. W> • • .. • .. • ' • S.C.R. SUPREME COURT REPORTS 1273 relied on Th11 Queen v. Cubitt (') which was a case under the Sea Fisheries Act. which created certain D 'd d. .cc y s. 11 prov1 e : ouences an "The provisions of this Act ............... shall be d b enforced by sea-fishery officers", who ltre defined by that section and it was held that the effect of the words was that no one except the sea-fishery officer could prosecute an offence under the Act. But there are no such words of limitation in In Taylor v. Taylor(') the words of the statute s. 237. were "entitled to the possession or the receipt of the rents and profits" and it was held that the order under the statute could only be made upon a petition which was within the words above quoted and if there wM.s no such person no order could be made but that again was decided on the peculiar language of the statute. Counsel also relied on Nazir Ahmad v. Crown(') where it was held that if the statute authorises the doing of an act in one way then it had to be done in .that way or not at all. ·The argument of Mr. Choudhuri really comes to this that the complaint filed on behalf of the official liquidator was incompetent iIJ. the absence of a direc tion under s. 237 or without complying with the pro cedure laid down in that section. Section 237(1) does not lay down any procedure for the giving t>f directions and the provisions in regard to the action taken by the registrar do not have any relevancy to what the court should do before it gives directions. English cases that have been cited do not go to the extent of saying that no prosecution can be instituted without the sanction of the court. They deal with another subject and that is the circumstances in which the Judge would give directions for prosecution and would sanction the assets of the company to be expended in prosecution. Besides nowhere has it been stated that the coprt cannot give directions without first hearing the persons accused or that the directions of the Judge are a condition precedent to the lawful institu- tion of criminal proceedings by the liquidator: (2) (<875) I Ch. 426. (I) (1889) 22 Q.B.D. 622. • t3) (1936) L.R. 63 LA. 372, ~SI. d N h 5 '958 . - 1 r. aien '" at Sinha o;. Another v. J osoda Dula/ Adhikari"' Another Kapur ]. • • • • • .. l • 1274 SUPRE:l1E COURT REPORTS [1959] v. • <l f' 1958 - On the other hand it ha.s been held tllat under s. 179 of the Indian Comp&nie2 Act no sanction is rc- · • Dr. Sailendra ,\'ath Sinha & Anoth" qnirc. or commencing a prosecution. n , asu:anti·ai .Mamhil Akhaney v. The ::Jtate of Bombay(') a.t the in- stance of the official liquidator 11 report. was lodged Jasoda Dula/ Adhika•i e;. with •the police against the Managing Directer of a Bank and the police submitted a c:hargc sheet to It was obse1Ted by Sinha J. 1tt the l\Iagistrate. page 502: Kap10 j. Anoth" J I • · "In terms the section lays down the powers of the official liquidator. Such a liquidator has to function under the directions oft.he court which is in charge of the liquidation proceedings. One of his powers is to institut{) prosecutions in the name and on behalf of the company under liquidation with the sanction oft.he court. This section docs not purport to impose any limitations on the powers of a criminal court to enter tain a criminal prosecution launched in tho ordinary courso under the provisions of the Code of Criminal Procedure". • • It was also pointed out in this ju<lgment that s. 1 i!l contains no words corresponding to the language of Drug Control Order, 1943, which was held to be a CO)l dition precedent for i1rntituting prosecution in the case of Blisdeo Aggarwal/a Y. King Emperor(') nor n.re there any prohibitor)· wonls like those that arc contained in ss. 196 and 197 of the Criminal Procedure Cnde. In the formrr case no prosecution could be instituted without the prnvions sanction of the Provincial Go\•crument and the htt{)r provides that:' no court shq.ll take cognirnrwe ............... ". There are two cases clecidcd by two Indian High Courts· which support the submission of the respondents' counsel. lu Emperor v. Rishan Sahai (') it was held that the C<>mpanics Act nowhere pro\·ides that wit.hout the directions of a Judge no eriminal prosecntion can be instituted. In 1\frityunjoy Clwkrawrti v. Pnn:ot l(umar Pal ('), it was hel<l that neither s. 1 i9 nor s. 237 in'.licatcs tl1nt if, the liquidator takes actiou without a • {I) [1956! S.C.H. 483. l31 J.L.R. (1937) All. i79· 12j [1945) F.C.R. 93 . l~i ,,..J.R. 1933 tal. 153. • • • • S.C.R. . SUPREME COURT REPORTS 1275 direction of the Court this action would be illegal or invalid or it would invalid~te u, prosecution. h I z958 -.- fDr. Sailendra Nath t us appear that uot 1 on t e a'.1guage o Sinha & Another uld h I t wo I •- v. ;asoda n .. 1a1 Adhikari & Another J(apur ]. s. 237(1) as well as on precedent the complarnt made by the liquidator against the appellants suffers from no such .infirmity as to make the proceedings ml'!! and void. The section contains no such words which indicate that such a prosecution cannot be instituted by a liquidator without the sanction of the Judge or that the Court cannot take cognizance of a complaint without such sanction or direction. Section 179 as the learned Chief Justice of Calcutta High Court has rightly ·pointed out, deals with the powers of liquida- tors to institute or defend proceedings with the sanc- tiQn of the Court and s. 237(1) deals with the powers of the Court to give directions for prosecution of delinquent directors, etc. It was further urged on behalf of the respondents that in the case before us there was a proper direction under s. 237(]). The judgment of the High Court shows that before the learned Judge gave a direction on July 22, 1952, there were before him proper mate rials and, therefore, his sanction was perfectly valid, legal and proper. Before this order made by Ban. nerji J. there was an order of Bachawat J. dated January 15, 1951, under s. 179 and, trherefore, when the liquidator authorised his Assistant, respondent No. 1 to institute the proceedings he was entitled to do so. As we have said above even in the absence of such directions the legality of the criminal proceedings instituted• would not be affected. Noth_ing that we have said in this judgment must be taken to be an expression of opinion which in any way affects the control by the Judge of proceedings in windirig up or over the liquidators. We would, therefore, dismiss this appeal. • Appeal dismissed . • 162 • • • • •