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Judgment
S.S. Nijjar, J.—In all these petitions substantial questions of law have been raised with regard to the applicability of the provisions of Section 138 to Section 142 of the Negotiable Instruments Act, in view of the provisions of Section 536(2), 441(2), 442 and 531 of the Companies Act. It is the submission of the petitioners that in view of the bar contained in Section 536(2) of the Companies Act, as soon as a winding up petition is filed in the Court, no complaint can be entertained by the criminal Courts for offences u/s 138 to Section 141 of the Negotiable Instruments Act. Mr. Manohar relies on a Division Bench Judgment of this Court in the case of Tulsidas Jasraj Parekh v. Industrial Bank of Western India AIR 1931 Bom. 2 : 32 Bom. L.R. 953 : 127 IndCas 82. wherein it is categorically held as under :
Section 227(2) intends to prevent any improper alienation and disposition of the property of a Company in extremis, during the period which must elapse before a winding up petition can be heard. However any bona fide transact ion carried out and completed in the ordinary course of current business can be sanctioned. This power is given for the benefit and the interest of the Company so as to ensure that a Company which is made the subject of winding up petition may nevertheless obtain money necessary for carrying out. its business and so avoid its business being paralyzed; but the Court will not allow the assets of the Company to be disposed of at the mere pleasure of the company and thus cause the fundamental principles of equity amongst its creditors to be violated.
Mr. Manohar, learned senior counsel further submits that it is a fundamental principle of law that, there cannot be an offence in respect of an act which is void ab initio. In support of this proposition, the learned senior counsel relied on a Judgment of the Supreme Court in the case of Nawabkhan Abbaskhan Vs. The State of Gujarat, , reported in. - The learned Counsel further submits that no Court can give a direction to a person which would lead to the transgression of any other law. The Court cannot direct the deliberate disobedience of a statute. For this proposition the learned senior counsel relies on yet another Judgment of the Supreme Court in the case of A.P. Christians Medical Educational Society Vs. Government of Andhra Pradesh and Another, Further still the learned senior counsel contends that again it is a fundamental principal of law that law does not require for a citizen to perform the impossible. For this proposition, the learned Counsel relies on another judgment of the Supreme Court Raj Kumar Dey and Others Vs. Tarapada Dey and Others, . The learned Counsel submits that once a company petition is filed all the creditors of the company become entitle to be treated equally. He submits that no preference can be given to one creditor over the other. In view of the mandatory bar provided u/s 536(2) of the Companies Act. the criminal complaints filed by the respondents under the Negotiable Instruments Act are not maintainable.
Mr. Chinoy. learned Senior Counsel on the other hand submits that there is in fact no bar u/s 536(2) of the Companies Act as submitted by the. learned Counsel for the petitioners. He submits that mere filing of the Company Petition does not prohibit the Company from making dispositions of its assets. For this proposition Mr. Chinoy relies on (i) 56 Company Cases 19 Division on Bench, Bombay (ii) 196 (2) All. R.R. 556 (iii) 17 Comp Cas 87, (iv) 1970 CompCas 1230. (v) 39 Comp Cas 201 and (vi) 90 Company Cases 438.
On the basis of the above, the counsel submits that any dispositions made till the passing of the order of winding up would not. be rendered void. These dispositions will only become void in the event of an order of winding up being passed because the. same will relate back to the date filing of the petition. The payments would be void ab initio 011 the passing of the order of winding up. In the event, no order of winding up is passed, there is no bar for making the payments. In the present ease, no order of winding up having been passed, the disposal of the assets of the company by way of payment by cheques cannot be said to be void. Therefore, the provisions of Section 138 to Section 141 of the Negotiable Instruments Act cannot be ousted. In order to remove any doubt it is restated that the submission of the learned Senior Counsel Mr. Chinoy, if that merely on filing of a company petition the disposal of the assets of the company between the date of the filing of the petition and the elate of the decision of the company petition would not render the transaction void. Thus there is no bar or prohibition on a Company to pay its debts, till such an order of winding up is passed. As noticed above, the Division Bench in Tulsidas''s case (supra) categorically holds that Section 227(2) of the Companies Act, 1913 intends to prevent any improper alienation and disposition of the property of a company during the period which must elapse before a winding up petition can be made. The observations made in Tulsidas''s case have been approved by the Division Bench in the case of Navjivan Mills (supra). On page 208 the Division Bench observed as follows :
A Division Bench of the Bombay High Court, consisting of Martin C. J. and Patkar J. considered the object and scope of Section 227(2) of the Indian Companies Act, 1913, which is in pari materia with Section 536 of the Companies Act, 1956, in Tulsidas Jasraj Parekh v. Industrial Dank of Western India AIR 1931 Born. 2 : 32 Bom. L.R. 953 : 127 INDCAS 82. and held as under (headnote of AIR 1931 Bom. 2) :-
Section 227(2) intends to prevent any improper alienation and disposition of the property of a Company in extremis, during the period which must elapse before a winding up petition can be heard. However any bona fide transaction, carried out and completed in the ordinary course of current business can be sanctioned. This power is given for the benefit and the interest of the Company so as to ensure that a Company which is made the subject of winding up petition may nevertheless obtain money necessary for carrying out. its business and so avoid its business being paralyzed; but the Court will not allow the assets of the Company to be disposed of at the mere pleasure of the Company and thus cause the fundamental principles of equity amongst its creditors to be violated.
It should be noted that in Tulsidas Jasraj Parekh Vs. The Industrial Bank of Western India, , the Bombay High Court was concerned with the three transactions entered into by and between Viramgam Spinning and Mfg. Com. and the petitioning creditors, namely. Industrial Bank of Western India, and one Dungershi Harilal, who became secured creditors as a result thereof and which transactions were sought to be impugned by the Official Liquidator after the winding up order was made against the said Company. Patkari J. in his concurring opinion referred to the decision in re. Willshire Iron Co.: Ex parte Pearson (1868) 3 Ch. 443 and quoted with approval from the speech of Lord Cairns L.J. as under :
This (Section 153) is a wholesome and necessary provision to prevent during the period which must elapse before a petition can be heard, the improper alienation and dissipation of the property of a company in exiremis. But where a company actually trading, which it is the interest of every one to going concern, is made the object of a winding up petition which may fall or may succeed if it were to be supposed that transactions in the ordinary course of its current, trade bona fide entered into and completed would be avoided and would not in the discretion given to the Court be maintained, the result would be that the presentation of a petition groundless or well founded would ipso facto paralyse the trade of the company and great injury without any counter-balance of advantage would be done to those interested in the assets of the Company.
After anxiously considering the argument, of the learned Counsel, I am of the considered opinion that problems such as (he ones presented in these petitions are likely to be raised in a large number of cases. Apart from the provisions of the Companies Act, it also needs to be examined as to whether or not the provisions of the Negotiable Instruments Act can be given precedence over the provisions of the Companies Act. The argument put forward by Mr. Shrikant Bhat. learned Counsel for the Respondents in some of the petitions, is that the provisions of the Negotiable Instruments Act have to take precedence over the provisions of the Companies Act. In support of this submission, he has relied on a Single Bench decision of the Kerala High Court in case of K.P. Devsssy v. Official Liquidator and another reported in 90 Comp Cas 438. In this Judgment, it is observed as follows: "In this connection, if must he remembered that the whole object of Section 446 is So avoid multiplicity of proceedings against a company. The object of the above section is also to preserve the assets of the company which are now in the hands of the official liquidator. One or two creditors may not be allowed to take advantage by filing suits before various Courts and enforce them against the company. Unless one single individual is charged with (he duty of distribution of (he assets of the company in an equitable manner, the creditors will not be benefited by the liquidation proceedings before the High Court. That is why the Courts have emphasised that the nature of (he action must be against the properly of (he Company. The proceeding must: be for the enforcement of something in (he nature of a persona! right against the assets of the company and not one in vindication of public interest. Unless all the properties and (he claims of the creditors of the company are pooled together and brought under the control of the company Court the assets cannot be conserved and applied in full satisfaction of the creditors equitably. It is the benefit to (he creditors that must be the guiding factor in dealing with these cases. Though the words "legal proceedings" in Section 446 of the. Companies Act are wide enough to embrace criminal prosecution also, that criminal proceedings must be in relation to the assets of the Company. The proceedings u/s 138 of the Negotiable instruments Act can and only in the conviction or acquittal of the accused in the case. No recovery of any amount covered by the dishonoured cheques can be made in the criminal case. Therefore, if is purely a personal act by the creditors against the person who issued the cheques. The mere fact that the petitioner in these cases signed the cheque as Managing Director of the chit fund in liquidation cannot alter the character of the criminal proceedings pending before the criminal Court."
Sri Ramakrishnan, learned Counsel for some of the respondents, cited the ruling of the Supreme Court in Damji Valji Shah and Another Vs. Life Insurance Corporation of India and Others, wherein the scope of Section 446 of the Companies Act, vis-a-vis Section 41 of the Life Insurance Corporation Act was discussed. The Supreme Court was of the opinion that the provisions of the Special Act. i.e. the Life Insurance Corporation Act will override the provisions of the general Act namely, the Companies Act, which is an Act relating to Companies in general. If the. above view is accepted the special provisions contained in the Negotiable Instruments Act regarding the cheques will definitely prevail over the provisions contained in the Companies Act.
In my view, the aforesaid judgment of the Kerala High Court would not be applicable when considering the bar u/s 536(2) of the Companies Act. It. is to be noticed that Sections 138 to 142 of the Negotiable Instruments Act are not framed in the nature of a non-obstante clause. If the intention of the parliament had been that the provisions of the Sections 138 to 142 would take precedence over the provisions of the Companies Act, it would have been so provided, the Sections would have provided "Not withstanding anything contained in the Companies Act..." No such non-obstante clause is to be found in the Negotiable Instruments Act. Yet the Judgment cited by Mr. Bhat. has clearly held that the proceedings in a complaint filed under the Negotiable Instruments Act can continue without the leave of the Court u/s 446(1) of the Companies Act. Further the learned Single Judge of the Kerala High Court has held that the proceedings u/s 138 of the Negotiable Instruments Act can end only in the conviction or acquittal of the accused in the case. No recovery of any amount covered by the dishonoured cheques can be made in the criminal case. Therefore, it is purely a personal act the creditors against the person who issued the cheques. To my mind these observations of the learned Single Judge of the Kerala High Court run counter to Section 141 of the Negotiable Instruments Act. The heading of the said Section is "Offences by Companies". With utmost respect to the learned Single Judge of the Kerala High Court 1 am unable to agree that the proceedings on the basis of the infringement of Section 141 are purely personal.
I am of the considered opinion that the matters deserve examination by a larger Bench. Consequently, the papers are directed to be placed before the Hon''ble the Chief Justice for constituting a larger Bench to decide the various issues which have been raised in these petitions. In view of the urgency of the matter and in view of the fact that the proceedings in all the criminal Courts have been stayed, the learned Counsel would be at. liberty to approach the Hon''ble the Chief Justice for fixing all the matters at an early date.