M/S. BSI LTD. AND ANR.

A ,....

GIFf HOLDINGS PVT. LTD. AND ANR. ETC.

FEBRUARY 15, 2000

[K.T. THOMAS AND D.P. MAHOPATRA, JJ.] B

Negotiable Instruments Act, 1872-Section 138-Dishonour of cheques-Complaint u/s. 138 against companies-Companies declared sick after institution of complaints u/s 138-Whether they are liable to be prosecuted c in view of embargo contained in Section 22(1) of Sick Industrial Companies (Special Provisions) Ac~ 1985-Held, Yes.

Cheques issued by the appellant company and their Directors were dishonoured by the drawee bank on the ground of insufficiency of amount in the account concerned. A complaint was filed against the company and D its Directors for the offence u/s. 138 of the Negotiable Instruments Act.

Those companies, subsequent to the filing of complaints against them, sought for declaration before the Board for Industrial Finance and Reconstruction, that those companies became sick as envisaged in the Sick Industrial Companies (Special Provisions) Act, 1985 and a declaration was made by the Board as per Section 22(3) of SICA. The appellants contended E that they were not liable to be prosecuted in view of the ban against maintainability of a complaint u/s. 138 of the Negotiable Instruments Act, for the recovery of amount as contained in Section 22(1) of SICA, since a court would not be able to effectively impose a sentence on a company after convicting it of the offence u/s. 138 of the NI Act. The appellants' case was F

"- dismissed both by the trial court as well as by the High Court. Hence this appeal.

Dismissing the Special Leave Petition and appeal, this Court ..

HELD : 1.1. If commission of the offences under Section 138 of G the Negotiable Instruments Act was completed before the commencement of proceedings under Section 22(1) of Sick Industrial Companies (Special Provisions) Act, 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. [824-F] H 815

SUPREME COURT REPORTS

[2000) 1 S.C.R.

. A 1.2. If Parliament intended to exempt sick companies rrom prosecu tion proceedings, necessary provision would have been included in Section 141 or the NI Act. More significantly, when Section 22(1) or SICA was amended in 1994 by inserting words ;'(and no suit for the recovery or money or for enforcement or any security against industrial company or or B guarantee in respect of any loans or advance granted to industrial company)". Parliament did not specifically include prosecution proceedings within the ambit of the ban. [824-E]

1.3. Section 138 of the NI Act is a penal provision the commission or which offence entails a conviction and sentence on proof of the guilt in a C duty 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 penal liability. [823-H; 824-A]

D 1.4. The word "suit" envisaged in Section 22(1), SICA, 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 E process. [823-G]

1.5. 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 p insurmountable hurdle for recovery of the fine covered by the sentence even from a sick industrial compa.ny because the ban contained in 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 G properties of the sick industrial company. [822-F-G]

Anil Hada v. India Acrylic Ltd., [2000] 1 SCC 1, relied On.

Maharashtra Tubes Ltd. v. State l11dustrial & Investment Corporation H of Maharashtra Ltd. & Anr., [1993) 2 SCC 144, distinguished.

B.S.I. v. GII<T HOLDINGS PVT. LTD. ~THOMAS, J.j 817

CRIMINAL APPELLATE JCRISDICTION : Criminal Appeal No. A 8747 of 1999 Etc.

From the Judgment and Order dated 9.6.99 of the Bombay High Court in Crl.W.P. No. 366. of 1999.

M.S. Ganesh, M.N. Rao, U.N. Bachawat, M.L. Verma, T.L.V. Iyer, B K.N. Shukla, A.K. Ganguli, D.A. Dave, P. Chidambaram, T.R.

Andhyarujina, Ashok H. Desai, Dushyand A. Dave, Nikhil Nayyar, .\'Irs.

Urmila Si:rur, Thiru Chaugu, G. Sreedhar, Y. Raja Gopala Rao, Ranjit Kumar, Ms. Anu Mohla, Chander Bhushan Prasad, Ms. Prabha Swami, Krishnamurthi Swami, R.N. Keshwani, Ms. Rakhi Ray, Ms. Vanita Bhar- C gava, Tapesh K. Singh, Ms. Bina Gupta, E.R. Kumar, R. Nedumaran, P.

Niroop, B.P. Padhy, Pawan Kumar, G. Prabhakar, Ms. T. Anamika, Mrs.

V.D. Khanna, Paresh C. Markand, Ms. Nirmala Gupta, K. Maruthi Rao, Ms. K. Radha, D. Mahesh Babu, S.S. Rana, Mrs. Bindra Rana, Vikrant Rana, P.S. Narasimha, P. Sridhar, K.N. Jha, V.G. Pragasan, Mrs. H. Wahi, Ms. Anu Sawheny, S.S. Khanduja, Y.P. Dhingra, Baldev Krishan Satija, D G.B. Sathe, Uma Nath Singh, Mrs. Kamakshi Mehwal, Prakash Jha, Ms.

Vestastina Dias, Pranab Kumar Mullick, Jenis Francis, VJ. Francis, P.I.

Jose, Ms. Asha Jain Madan, Ms. Madhu Dadlani, (K.K. Gupta) (NP), J.S.

Goswami, Ms. Bina Gupta, Prashyant Naik, Ms. Rekha Ray, C.L. Sareen, Rajiv Dutta, Kapil Sharma, H.P. Sharma, Ms. Enakshi Kulshreshtha, N.S. E Tambwekar, Nitin Tamswekar, Alok Sen Gupta, Ranjan Narain, Ms.

Det:pa Das, Ms. Lavanya, Ms. Vivek Zutshi, S. Sukumaran, U.U. Lalit, R.

Sasiprabhu, A.P. Vinod. Manoj Pra;.aJ, Mohit Mathur, Ms. Astha Tyagi, S. Praf>ad, V.A. Ram, Rajcsh Niti1, Kailash Vasdev, R. Rahim, V.B. Joshi, Ms. Sweta Sharma, Ms. Bharati B., V.G. Praga:-am, Sanjecv en, R.N.

Karanjawala, Ms. Nandini Gore, Arunabh Choudhary, Uday Kumar, Ms.

F Manik Karanjawala, Ramesh Singh and Naris Beerani for the appearing parties.

The Judgment of the Court was delivered by

THOMAS, J. Some companies and their Directors are now frantical- G ly 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 H

818 SUPREME COUKl' REPORTS [2000] l S.C.R.

A 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 bdore the BIFR no prosecution can be maintained under law against those B companies. But the plea so made by such companies was not found favour with the trial court~, nor with the evisiollli.l courts nor even with the High Courts bdon: 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 discounrenanced.

C It is sufficient to set out the facts from one of thee appeals in this batch. Answers given to the questions raised in that appeals would apply to all the connected appeals now being heard along with that appeal. Facts in Criminal Appeal No. 847 of 1999 an: the following: Cheques issued by the appellant thertin were dishonoured by the drawee bank on 27.12.1996 on the ground of msufficicncy of amount in the account concerned, and D the payee thereof issued a notice on 2.1.1997, demanding paymrnt of the amount covered by such cheques. As the drawer of the cheques failed to make the payment as per demand, withm 15 days of receipt of the notice, a compliant was ftled on 29.2.1997 against the company and its Directors for the offence under Section 138 of the egotiable Instruments Act ('NI E Act' for short). The magistrate before whom the complaint was filed issued process against the accused who were arrayed then:in.

Two petitions fur winding up of the company were filed in June 1997, one at the instance of a creditor of the company and the other hy the p company itself. Then::after the company moved the BlfR to Jedare it a sick industrial company. When proceedings were pending before the BlFR under Section 16 of the SICA 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 tu be prosecuted in view of the embargo contained in Section 22(1) of SICA.

G 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 H deemed to be guilty of the offence and shall be !iable to be proceeded

13.S.l. v. GIJ:<T HOI .DINGS PVT. LTD. [THOMAS, J. J 819

against and punished accordingly,'" (vide Section 141 of the NI Act).

In Anil Hada v. l11dia11 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 busine>S of the company. (3) Any other

pt:rson 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 t:mbargo 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 D to certain other provisions of SICA also.

ln the Statement of Object 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 Joss of E 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 fdt to enact io public interL.st a legll, lation to provide for timely detection of 1.ickness in industrial companies and for expeditious determination by a body of experts of the preventive, ameliorative, F 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 dispatch.' 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 G 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 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 H

820 SUPREME CO CRT Rf<PORTS [20UOJ l S.CR.

A make the rderem:e to the BIFR for the same purpu-; e if it has sutficient reasons to believ.: that a company has bt:come sick.) Once a refcn:nce is made it is open to BIFR to conduct an inquiry for determining whether the company has become sick. If the BI FR is satisfied, on completion of the inquiry, that the company has become sick it can adopt any of the B measun.:s envisaged in Section 17 of ~1 (A 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 th<1t Section 22 of SICA has to be C 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 c r any scheme referred to under section 17 is under preparation or consid;; ration or a sanctioned scheme is under implementation or where an appeal under Section 25 relat ing to an industrial company is pending, then, notwithstanding anything contained in 1he 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 propertit:s of the industrial company or for the appointm..:nt of a receiver in respect thereof and no wit for th.: n:cowrv of money or for the enforcem.; nt of any security again>t the industrial company or of any guarant.:e in respect of <tny l•1an' or adv'111L<: granted to the industrial company , hall lie or bt:: proceeded with furthe; r. except with the consent of tht Board or, as the case may be, the Appellate Authority."

Sub-section (2) is not of any rekvance so far as the points raised in this batch of appeals are concerned. Sub-section (3) confers power on the G 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 su5pendcd 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 H such declaration is made under sub-section (3) it shall have overriding


8.S.L v. GltT HOLD I"< GS PVT LTD. [THOMAS, J j 821

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 courL.rn ........ 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 provisions is txtracti::d 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 C interest, by order in writing, direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets ·

(a) during the period of preparation or consideration of the

schcme under section 18; and D

(b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub-slOction ( l) 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 th<:: scope of section 22 A of SICA in the present batch of appeab as the BIFR did not pass any order against any company involved hen; in 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 F 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 G 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 cheqUt:s. The ban imposed, as per Section 22( 1) of the SI CA, is against maintainability H

822 "ilJPREMh ( :m rKI JU.PORTS

[2000] 1 S.C.R.

A of the following legal action :

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

(2) Procc:edings for execu:ion, distress or the likes against any of

the prupertics of the company;

(3) Proceedings for the appointm..:nt of a receiver in respect of such properties;

( 4) Suit for recovery of money or for enforcement of any security

ag<1inst tht. company or guar dntec; in respect of any loan or advance; granted to the company.

Some of tht: learned counsd pointt:cd out that when a company is convicted undi.:r 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 D the fine coven:d by such sentence would be impractical on account of the ban envisaged in S..:ction 22(1) of SICA against proceedings for execution, distress or the likts as against any of the propt:rties of tht: company. As a corollary, it was submitted that prosecuti0n against the company cannot be maintained since a court would not be abk to t:ffectivdy impose a sentence E 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 maintainah[lity of a prLJsecutinn proc..:eding is not to bt: leskd on l hi.: tom:hstone of any practical hurdle in enfordng the :, entem:t: which m:.ghl b.: imposed F on a company afti.:r conviction. St:cond is, tht:re is no insurmountable hurdle for rccowry of the fine covt:red by the sentence even from a sick industrial company because the ban contained in Section 22(1) is only conditional a' could be discerned from the last limb thereof which rt:ads thus : "Except with the consent of the Board or, as the case be, the G Appellate Authority.'' It means that with such consent tht: 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 contt:nded that the ban against maintainability of a suit H for the rt:covery of money would encompass prosecution proceedings also.

B.S.l v. GlFI HOLDINGS PVT.LTD. :THOMAS, J.j 823

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, m such court, the n:medy 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 magistrak".

Learned counsel invited our attention to the maxim "contemporanea expositio est optima et f onissama 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 atti::ntion has also been invited to the observation of a two Judge D Bench of this Court in Maharashtra Tubes Ltd. v. 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 St:ction 22(1) of SICA, therein it has been held that the expression "proceedings" in the sub-section must be widely construed. This is what E the Bench has observed :

'The legislature has advisedly used an omnibus expression 'the like' as it could not have perct:ived of all possible crn:rciw measures that may be taken against a sick undertaking.'' F 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 "rtcovery of money or for enforcement of any security against the industrial company or of any guaranke 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 G of any other stretching process.

A criminal prosecution is neither for recovery of money nor for enforcement of any si::curity etc. Section 138 of the NI Act is a penal provision the commission of which offence entails a conviction and sen- H

824 SUPREME COURT KEPOR rs

[2G00] 1 S.C.R.

A tence on proof of the quilt in a duly conducted criminal proceedings. Once

the offence under Section 138 is compltted the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to the penal !iability. What was considered in Maharashtra Tubes ltd. (supra) is whether the remedy provided in Section B 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.

ln the above context it is pertinent to point out that Section 138 of C NI Act was introduced in 1988 when SICA was already in vogue. Even

when the amplitude of the word ;'company" mentiom; d in Section 141 of the NI Act was widened through the Explanation added to the section, Parliament did nut 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 D would have bt:en 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 recowry 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 E included prosecution procet:ding within the ambit of tht: said ban.

The conclusion which we have to draw is that if commission of the offence under Section 138 of the Nl Ad was completed before the commencement of prnceedings under Slcti,1n 22(1) of SICA there j, 110 hurdle in any tlf the provisi.ons of SICA agamst the maintainability ,; nd pro"::cutio•' F of a criminal complaint duly institutc:d under Section l. U of the NI Act.

The decisions rendered by the High C1urt, which are assailed before us in this batch of appeals, are therefore not liable to be interfered with. Appeals are accordingly dismissed< Special Ll; ave Petitions heard along with the above appeals are also hence dismissed.

R.A.

Appeals/Pt:titions dismissed.