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CASE NO.: Appeal (crl.) 847  of  1999

PETITIONER: M/S. BSI LTD. & ANR.

       Vs.

RESPONDENT: GIFT HOLDINGS PVT. LTD. & ANR.

DATE OF JUDGMENT:       15/02/2000

BENCH: K.T. THOMAS D.P. MOHAPATRA

JUDGMENT:

THOMAS, J.

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   Some  companies and their Directors are now  frantically struggling  to  get themselves extricated from the catch  of prosecution  proceedings pitted against them, consequent  to non-payment  of  amounts covered by cheques issued  by  such companies.   All  the  companies involved in this  batch  of appeals  have  a  common cause now in that  those  companies have,  subsequent to the filing of complaints against  them, approached   the   Board   for    Industrial   Finance   and Reconstruction (’BIFR’ for short) and sought for declaration that  those  companies became sick as envisaged in the  Sick Industrial Companies (Special Provisions) Act, 1985, (’SICA’ for short).  They maintained the stand that when proceedings are pending before the BIFR no prosecution can be maintained under  law against those companies.  But the plea so made by such  companies was not found favour with the trial  courts, nor with the revisional courts nor even with the High Courts before  which  the companies approached.  All these  appeals have  been filed by special leave against the orders  passed by  the  High  Courts  by   which  the  aforesaid  plea  was discountenanced.

   It  is sufficient to set out the facts from one of these appeals  in  this  batch.  Answers given  to  the  questions raised  in  that  appeal would apply to  all  the  connected appeals  now  being heard along with that appeal.  Facts  in Criminal  Appeal No.847 of 1999 are the following:   Cheques issued  by  the  appellant therein were dishonoured  by  the drawee  bank on 27.12.1996 on the ground of insufficiency of amount  in  the  account concerned, and  the  payee  thereof issued a notice on 2.1.1997, demanding payment of the amount covered  by  such  cheques.  As the drawer  of  the  cheques failed  to make the payment as per demand, within 15 days of receipt  of  the notice, a complaint was filed on  29.1.1997 against  the company and its Directors for the offence under Section  138 of the Negotiable Instruments Act (’NI Act’ for short).   The magistrate before whom the complaint was filed

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issued process against the accused who were arrayed therein.

   Two  petitions for winding up of the company were  filed in  June  1997,  one at the instance of a  creditor  of  the company and the other by the company itself.  Thereafter the company  moved  the  BIFR to declare it  a  sick  industrial company.   When  proceedings  were pending before  the  BIFR under  Section 16 of the SICA a declaration was made by  the order  passed by the BIFR as per Section 22(3) of SICA.  The above is the background in which the appellants contend that they  are not liable to be prosecuted in view of the embargo contained in Section 22(1) of SICA.

   When  the  offence under Section 138 of the NI  Act  has been  committed by a company "every person who, at the  time the  offence  was  committed,  was in  charge  of,  and  was responsible  to the company for the conduct of the  business of  the company, as well as the company, shall be deemed  to be guilty of the offence and shall be liable to be proceeded against  and punished accordingly." (vide Section 141 of the NI Act).

   In  Anil Hada vs.  Indian Acrylic Ltd.  {2000 (1) SCC 1} it has been pointed out that three categories of persons can be  discerned  as  brought within the purview of  the  penal liability,  through  the legal fiction envisaged in  Section 141  of  the  NI  Act.  They are:   (1)  The  company  which committed  the offence.  (2) Every person who was in  charge of  and  responsible to the company for the conduct  of  the business  of  the  company.  (3) Any other person who  is  a director  or  a manager or a secretary or an officer of  the company  with  whose  connivance or with whose  neglect  the company has committed the offence.

   Learned  counsel  for the appellant submitted that  when reconstruction  efforts  of  a sick industrial  company  are pending  under  the  provisions  of  SICA  all  other  legal proceedings  including  any  prosecution  proceedings  would stand suspended by the operation of the embargo contained in Section  22(1)  of SICA.  In order to persuade the court  to place such an interpretation on the said sub-section learned counsel invited our attention to certain other provisions of SICA also.

   In  the Statement of Objects and Reasons for introducing the  Bill  in the Parliament which later became Act No.1  of 1986,  it  is  stated, inter alia, that the ill  effects  of sickness in industrial companies such as loss of production, loss  of employment, loss of revenue to the Governments  and locking  up  of  investible  funds of  banks  and  financial institutions  are  of serious concern to the Government  and the  society at large.  "A need has, therefore, been felt to enact in public interest a legislation to provide for timely detection  of  sickness  in  industrial  companies  and  for expeditious  determination  by  a  body of  experts  of  the preventive,  ameliorative, remedial and other measures  that would  need to be adopted with respect to such companies and for   enforcement  and  for   enforcement  of  the  measures considered  appropriate with utmost practicable despatch." A sick  industrial company is a company which has "at the  end of  any  financial  year  accumulated  losses  equal  to  or exceeding its entire net worth." {vide Section 3(1) of SICA}

   Section  15 enables the Board of Directors of a  company which  has  become  sick to make reference to the  BIFR  for

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determination  of  measures  which  shall  be  adopted  with respect  to  the  company.  (The Central Government  or  the Reserve Bank or the State Government concerned may also make the  reference  to the BIFR for the same purpose if  it  has sufficient  reasons  to  believe that a company  has  become sick.)  Once  a  reference  is made it is open  to  BIFR  to conduct  an inquiry for determining whether the company  has become sick.  If the BIFR is satisfied, on completion of the inquiry,  that the company has become sick it can adopt  any of  the  measures envisaged in Section 17 of SICA.  When  an order  is made under Section 17 a scheme with respect to the company   shall  be  prepared  by  "the  operating   agency" specified in such order.  The above is the general scheme of SICA.

   It  is  in the above background that Section 22 of  SICA has  to  be  looked at.  Sub-section (1) of  Section  22  is extracted below:

   "Where  in respect of an industrial company, an  inquiry under  section 16 is pending or any scheme referred to under section  17  is  under  preparation or  consideration  or  a sanctioned scheme is under implementation or where an appeal under  Section  25  relating  to an  industrial  company  is pending,  then,  notwithstanding anything contained  in  the Companies  Act, 1956, or any other law or the memorandum and articles  of  association of the industrial company  or  any other  instrument having effect under the said Act or  other law,  no  proceedings for the winding up of  the  industrial company  or for execution, distress or the like against  any of  the  properties  of the industrial company  or  for  the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against  the  industrial  company  or of  any  guarantee  in respect  of  any loans or advance granted to the  industrial company  shall lie or be proceeded with further, except with the  consent  of  the  Board or, as the  case  may  be,  the Appellate Authority."

   Sub-section  (2)  is not of any relevance so far as  the points  raised in this batch of appeals are concerned.  Sub- section  (3)  confers power on the BIFR to declare that  the operation  of  all  or any of the contracts,  assurances  of property,  agreements, settlements, awards, standing  orders or  other  instruments in force shall be suspended and  that all  or  any  of  the rights,  privileges,  obligations  and liabilities  accruing or arising thereunder before the  said date shall remain suspended.  Sub-section (4) says that when any  such declaration is made under sub-section (3) it shall have  overriding effect and "any remedy for the  enforcement of  any right, privilege, obligation and liability suspended or  modified  by  such   declaration,  and  all  proceedings relating  thereto  pending  before  any  court  shall remain stayed."

   As  the  arguments based on Section 22(1) of  SICA  were endeavoured to be fortified with the help of Section 22.A of SICA the said provision is extracted below:

   22.A  Direction not to dispose of assets.  - The  Board may,  if it is of opinion that any direction is necessary in the  interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing, direct the sick industrial company not to dispose of, except

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with the consent of the Board, any of its assets-

   (a) during the period of preparation or consideration of the scheme under section 18;  and

   (b)  during  the period beginning with the recording  of opinion  by  the Board for winding up of the  company  under sub-section  (1) of section 20 and up to commencement of the proceedings  relating to the winding up before the concerned High Court."

   We  do not think it necessary to labour on the scope  of Section  22.A of SICA in the present batch of appeals as the BIFR  did  not pass any order against any  company  involved herein  until  the expiry of the period of 15 days from  the receipt  of notice contemplated in clause (c) of the proviso to  Section 138 of the NI Act.  So none of the companies was interdicted  by  any  such order envisaged in  Section  22.A during the above period of 15 days.  Hence, we are unable to find  any  help from the said provision which could  salvage the  appellants  from  the prosecution  proceedings  against them.

   Switching back to sub-section (1) of Section 22 of SICA, we  may point out that its operation commence in respect  of the  companies involved in this batch of appeals only  after the  expiry of the period of 15 days envisaged in clause (c) of the proviso to Section 138 of the NI Act within which the companies  did  not pay the amount covered by  the  cheques. The  ban  imposed,  as  per Section 22(1) of  the  SICA,  is against maintainability of the following legal actions:

   (1) Proceedings for the winding up of the company;

   (2)  Proceedings  for execution, distress or  the  likes against any of the properties of the company;

   (3)  Proceedings  for the appointment of a  receiver  in respect of such properties;

   (4)  Suits  for recovery of money or for enforcement  of any  security against the company or guarantee in respect of any loan or advance granted to the company.

   Some  of  the  learned counsel pointed out that  when  a company  is  convicted under Section 138 of the NI  Act  the court  can  only  impose  a fine as  the  sentence  since  a juristic  person like the company cannot possibly be sent to prison.   On  its  premise learned  counsel  contended  that recovery  of  the  fine covered by such  sentence  would  be impractical on account of the ban envisaged in Section 22(1) of  SICA against proceedings for execution, distress or  the likes as against any of the properties of the company.  As a corollary,  it  was submitted that prosecution  against  the company cannot be maintained since a court would not be able to  effectively  impose  a  sentence   on  a  company  after convicting it of the offence under Section 138 of NI Act.

   The  fallacy of the above contention is two-fold.  First is  that maintainability of a prosecution proceeding is  not to  be  tested on the touchstone of any practical hurdle  in enforcing  the sentence which might be imposed on a  company after  conviction.   Second is, there is  no  insurmountable hurdle for recovery of the fine covered by the sentence even from  a sick industrial company because the ban contained in

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Section 22(1) is only conditional as could be discerned from the  last  limb thereof which reads thus:  "Except with  the consent  of the Board or, as the case may be, the  Appellate Authority."  It means that with such consent the court would be  in  a  position to resort to  proceedings  for  distress against  the  properties  of the  sick  industrial  company. Hence the aforesaid contention has no merit at all.

   It   was   next   contended   that   the   ban   against maintainability  of  a suit for the recovery of money  would encompass prosecution proceedings also.  To support the said contention  reliance was sought to be made on the  following meaning  of  the  word  "suit" as  given  in  Bouvier’s  Law Dictionary:

   "Suit  is a generic term of comprehensive signification, and applies to any proceeding in a court of justice in which the  plaintiff pursues, in such court, the remedy which  the law  affords  him  for  the redress of  any  injury  or  the recovery  of a right In its most extended sense,  the word  suit  includes  not only a civil action,  but  also  a criminal  prosecution,  as,  indictment, information  and  a conviction by a magistrate".

   Learned  counsel  invited  our attention  to  the  maxim contemporanea  expositio est optima et fortissima in  lege (contemporaneous  exposition  is the best and  strongest  in law)  for  the purpose of stretching the scope of  the  word suit to envelope criminal prosecution as well.

   Our  attention has also been invited to the  observation of a two Judge Bench of this Court in Maharashtra Tubes Ltd. vs.    State   Industrial   &  Investment   Corporation   of Maharashtra  Ltd  and  anr.   {1993  (2)  SCC  144}.   While considering  the  purpose  and   objects  of  suspension  of proceedings  mentioned in Section 22(1) of SICA, therein  it has  been held that the expression "proceedings" in the sub- section  must  be widely construed.  This is what the  Bench has observed:

   "The   legislature  has  advisedly   used   an   omnibus expression  ’the like’ as it could not have perceived of all possible  coercive measures that may be taken against a sick undertaking."

   The  said contention is also devoid of merits.  The word "suit"  envisaged  in Section 22(1) cannot be  stretched  to criminal  prosecutions.   The  suit   mentioned  therein  is restricted  to "recovery of money or for enforcement of  any security  against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company.  As the suit is clearly delineated in the provision itself,  the context would not admit of any other stretching process.

   A  criminal prosecution is neither for recovery of money nor for enforcement of any security etc.  Section 138 of the NI  Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings.  Once the offence under Section  138 is completed the prosecution proceedings can be initiated  not  for  recovery of the amount covered  by  the cheque but for bringing the offender to the penal liability. What  was  considered in Maharashtra Tubes Ltd.  (supra)  is

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whether the remedy provided in Section 29 or 31 of the State Finance   Corporation   Act,    1951    could   be   pursued notwithstanding the ban contained in Section 22 of the SICA. Hence the legal principle adumbrated in the said decision is of no avail to the appellants.

   In  the above context it is pertinent to point out  that Section  138 of NI Act was introduced in 1988 when SICA  was already  in  vogue.   Even when the amplitude  of  the  word "company" mentioned in Section 141 of the NI Act was widened through the Explanation added to the section, Parliament did not  think  it necessary to exclude companies falling  under Section  22  of  SICA  from   the  operation  thereof.    If Parliament   intended   to  exempt   sick   companies   from prosecution  proceeding, necessary provision would have been included  in Section 141 of the NI Act.  More significantly, when  Section 22(1) of SICA was amended in 1994 by inserting the  words  ["and no suit for the recovery of money  or  for enforcement of any security against industrial company or of any  guarantee in respect of any loans or advance granted to industrial company"] Parliament did not specifically include prosecution proceedings within the ambit of the said ban.

   The  conclusion  which  we  have  to  draw  is  that  if commission  of  the offence under Section 138 of the NI  Act was  completed before the commencement of proceedings  under Section  22(1)  of  SICA there is no hurdle in  any  of  the provisions   of  SICA  against   the   maintainability   and prosecution  of  a criminal complaint duly instituted  under Section  142  of the NI Act.  The decisions rendered by  the High  Courts, which are assailed before us in this batch  of appeals,  are  therefore not liable to be  interfered  with. Appeals  are accordingly dismissed.  Special Leave Petitions heard along with the above appeals are also hence dismissed.