Even in case of large scale fraud, recovery can't be made beyond 5 years of relevant date

 

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Where allegations of cheating and fraud had been levelled against partners of company, regarding which FIR had been registered in Delhi, Delhi Court had summoned accused and Magistrate at Delhi had taken cognizance of matter, petitioners could not have approached a different High Court for quashing of complaint

1. This is a petition filed under Section 446 of the Companies Act read with Section 482 Cr.P.C. seeking quashing of FIR No. RC-BD- 1/2000/e/0005 and Sections 120-B, 420, 467, 468 and 471 IPC dated 22.12.2000, registered by Central Bureau of Investigation, Bank Securities and Fraud Cell, New Delhi.

2. The primary question which requires adjudication is whether the FIR registered in Delhi can be quashed in the proceedings filed in this High Court. Secondly, whether the expression “other legal proceedings” occurring in Section 446 of the Companies Act would include Criminal Proceedings.

3. It would be useful to give the factual matrix, the petitioners claim themselves to be Ex-Directors/Promoters of Asian Consolidated Industries Ltd. which was earlier in liquidation in the proceedings decided on 12.05.2014. It has been pleaded that the company is now out of liquidation as it has settled all the secured or unsecured creditors.

4. The company started its commercial production in about 1990. It started making losses in 1996 and faced labour problems which led to retrenching of workers. The financial position of the company continued to deteriorate and thus putting strain on the performance of the company. In 1998, in the liquidation petition, a winding up order was passed and the petition was allowed on 07.01.1999. An official liquidator was appointed to take charge of all the assets. The order of admission of the petition and the order of winding up was challenged in company appeal before the Division Bench. No interim relief was granted. The appeal is still stated to be pending before the Division Bench.

5. The company had approached Small Industries Development Bank of India (here-in-after referred to as SIDBI) for sanction of limit under the Direct Discounting of Bills (Components) to the extent of Rs.200 lac and the limit was secured by second charge on the fixed assets of company and personal guarantee of Mr. Rakesh Jain and Mr. Alok Jain besides other charges on their properties. The limit of Rs.100 lacs was released to the company after the requisite shares were pledged. An ad hoc limit of Rs.500 lacs was sanctioned in November, 1993 against security of pledge of equity shares.

6. The case of the petitioner is that the respondent no.2 bank levelled allegations that they had come to know that one of the pledgers M/s. Ganesh Exports had pledged 20 lacs shares of ACIL Company and the share certificates which were given to SIDBI by way of pledge executed vide agreement dated 17.01.1995 and 31.08.1995 bore the same certificate number, same folio number and distinctive share number. The bank lodged a complaint with CBI vide their letter dated 14.11.2000 and the FIR was registered with the Fraud Cell at New Delhi.

7. The petitioners have pleaded that they had informed SIDBI in October 1995 that distinctive number on share certificate in respect of 20 lac shares pledged by M/s. Ganesh Exports were wrongly printed and they may not be utilized and should be returned so that necessary corrections could be made. It was pleaded that they had no intention to cheat and it was a clerical mistake. The bank did not return the share certificate. The petitioners have pleaded that the shares pledged with IDBI for a bridge loan were not parted with and the loan was repaid on 04.01.1994 much prior to the agreement of pledge with SIDBI. The case of the petitioners further is that the company in liquidation had arrived at one time settlement with the respondent no.2 bank and a communication was given to the company on 01.07.2013 and one time settlement had been arrived at and entire dues had been paid and no outstanding amount was pending. It was pleaded that the complainant of the said FIR had filed recovery proceedings before Debt Recovery Tribunal, Delhi and they had withdrawn the recovery certificate in July, 2013 and an order was passed in this regard. It was pleaded that the company in liquidation did not have any intention to cheat any secured or unsecured creditors. It was pleaded that the petitioners and complainant/respondent no.2 had reconciled their grievances and had buried their disputes and therefore, they were approaching this Court for quashing of the FIR as continuation of further proceedings would be waste of judicial time and resultantly lead to miscarriage of justice. The petitioners had pleaded that in view of the five Judges Bench judgment reported in Kulwinder Singh Vs. State of Punjab, 2007(3) Law Herald (P&H) 2225, the FIR should be quashed. The petitioners had also prayed for interim stay.

Held by Court:

21. In Pennar Paterson Ltd. (Re) 2002 (36) SCL 525 (Andhra Pradesh), the Andhra Pradesh High Court was examining the expression “other legal proceedings” occurring in Section 446(1) of the Companies Act and whether they would include criminal proceedings.

Para Nos.10, 13, 14 and 19 of the judgment are relevant and read as under:-

10. The question as to whether the expression 'other legal proceedings' would include prosecution may now be considered. Section 446 of the Act has been enacted for the purpose of protection of the assets of the Company. By reason of the said provision, the personal criminal misconduct on the part of the Company or its Directors is not saved.

13. It has clearly been held that a prosecution does not come within the purview of Section 446 of the Companies Act inter alia on the ground that the said provision has been enacted for the purpose of saving the assets of the Company and having regard to the provisions contained in Sections 187-B and 391(6) and 457, prosecution would not come within the purview thereof. It is now well settled principles of law that where different expressions have been used in different sections of the statute, the same should be given different meanings.

14.The words "suit and other legal proceedings" may be read ejusdem generis. Had the intention of the Legislature been to include prosecution within the expression 'other legal proceedings', there was no reason as to why it could have been said so. Although the heading of section is not relevant for construction of a statute, where the wordings of the section are clear, the same in the case of obscurity can be referred to for ascertaining the true meaning of the provision.

19. It is now trite that even assuming that prosecution has been launched illegally, the remedy of the Official Liquidator would be either to file an application under Section 633 of the Companies Act and or to file an application before the concerned High Court to which the Court of Magistrate is subordinate either under Article 226 or 227 of the Constitution of India or under Section 482 or 397of the Criminal Procedure Code. The order taking cognisance by criminal Court can be interfered with either by a Magistrate, Sessions Judge or by the High Court.

22. It was concluded in the above case that the company Court has no jurisdiction to transfer a criminal case from one Court to another and the expression other legal proceedings occurring in Section 446(1) did not embrace within its fold a criminal proceedings.

23. The definition of Court in Section 2(11) of the Companies Act, 1956 clearly states that the Court would mean the Court having jurisdiction with respect to the matter relating to the company as provided under Section 10 and with respect to any offence against the act meaning thereby the Companies Act, it would be the Court of the Magistrate of the Ist Class having jurisdiction.

24. The expression “Court which is winding up the company” will comprehend the Court before which a winding up petition is pending or which has made an order for winding up of the company. Such a Court Ipso facto would have jurisdiction to entertain the proceedings enumerated in Clause a to d of Sub Section 2 of Section 446 of the Act.

25. In the present case there is no case against the Act, nor the matter relates to the winding up of the company. The allegations of cheating and fraud have been levelled against the partners regarding which the FIR has been registered in Delhi. It is the Delhi Court who had summoned the accused. The Magistrate at Delhi had taken cognizance of the matter. Therefore, the petitioners could not have approached this High Court for quashing. The petition is dismissed being not maintainable.

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