Allowed

N T Sebastian v. the Official Liquidator of

Karnataka HC10 Feb 2023CRL.RP/382/2019

Case brief

AI extract

What is this about?

High Court allowed criminal revision petition holding that prosecution of ex-directors under Section 538(1)(c) of the Companies Act, 1956 was illegal due to absence of mandatory court sanction under Section 457(1)(a), quashing conviction and setting aside judgments below while permitting fresh proceedings with proper sanction.

What did the court decide?

Judgment of conviction and sentence set aside; Judgment of appellate court set aside; liberty granted to respondent to initiate proceedings with proper sanction.

N T Sebastian Vs the Official Liquidator of — Company and Corporate | Karnataka HC (2023)

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1 - CRL.RP No. 382 of 2019

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 10^TH DAY OF FEBRUARY, 2023

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BEFORE

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THE HON'BLE MR JUSTICE R. NATARAJ CRIMINAL REVISION PETITION NO. 382 OF 2019

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BETWEEN:

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N.T. SEBASTIAN SON OF LATE N.J. THOMAS, AGED ABOUT 76 YEARS, RESIDING AT NO.2997, 12^TH MAIN, 5^TH CROSS, HAL II STAGE, INDIRANAGAR, BANGALORE-560038.

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J. CHERIAN SON OF LATE C. JOHN, AGED ABOUT 75 YEARS, RESIDING AT NO.1002, T. DASARAHALLI, BANGALORE-560057.

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…PETITIONERS

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Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA

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(BY SRI. SANJAY NAIR, ADVOCATE)

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AND:

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THE OFFICIAL LIQUIDATOR OF M/S NUCOR WELD PVT. LTD., 'CORPORATE BHAVAN', NO.26-27, RAHEJA TOWERS, 12^TH FLOOR, M.G. ROAD, BANGALORE-560001.

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GEORGE JOSEPH FATHER'S NAME NOT KNOWN, MAJOR, RESIDING AT APT-F, LAKESHORE MANOR, 112, G. CHETTY ROAD, BANGALORE-560042

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CRL.RP No. 382 of 2019

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R. SHIVKUMAR SWAMY FATHER'S NAME NOT KNOWN MAJOR, RESIDING AT NO.1825, 7^TH MAIN, E-BLOCK, II STAGE, RAJAJINAGAR, BANGALORE-560010

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H.A. SUBBAIAH FATHER'S NAME NOT KNOWN MAJOR, RESIDING AT NO.261, KOTHANUR DINNE STREET, KOTHANUR VILLAGE, MTST JOSEPH COLLEGE PO, BANGALORE-560076.

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…RESPONDENTS

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(BY SRI. K.S. MAHADEVAN, ADVOCATE FOR RESPONDENT NO.1; VIDE ORDER DATED 08.01.2021 SERVICE OF NOTICE TO RESPONDENT NOS.2 TO 4 IS DISPENSED WITH)

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THIS CRL.RP IS FILED UNDER SECTION 397 READ WITH SECTION 401 OF THE CODE OF CRIMINAL PROCEDURE, 1973 PRAYING TO REVERSE THE ORDER DATED 18.02.2019 PASSED BY THE LXIV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE (CCH-65) AT BENGALURU IN CRL.A.NO.1448/2014 AND SET ASIDE THE ORDER OF CONVICTION DATED 26.11.2014 PASSED IN C.C.NO.114/2008 ON THE FILE OF THE SPECIAL COURT FOR ECONOMIC OFFENCES, BENGALURU AND ETC.

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THIS PETITION, COMING ON FOR FINAL HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:

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3 - CRL.RP No. 382 of 2019

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ORDER

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Petitioners have challenged the Judgment of conviction and order of sentence dated 26.11.2014 passed by the Presiding Officer, Special Court for Economic Offences, Bengaluru, (henceforth referred to as ‘the Trial Court’) in C.C. No.114/2008 by which they were convicted for the offence punishable under Section 538(1)(c) of the Companies Act, 1956 (for short, ‘the Act of 1956’) read with Rule 9 of the Companies (Court) Rules, 1959 (for short, ‘the Rules of 1959’) and were sentenced to undergo imprisonment for a term of two years and to pay fine of Rs.5,000/- each. The petitioners have also challenged the Judgment dated 18.02.2019 passed by the LXIV Additional City Civil and Sessions Judge, Bengaluru City, (for short, ‘the Appellate Court’) in Criminal Appeal No.1448/2014 by which the said Judgment of conviction and order of sentence passed by the Trial Court was upheld.

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The petitioners claimed to be ex-Directors of M/s.Nucor Weld Pvt. Limited (henceforth referred to as 'the Company in liquidation'). The Company in liquidation was wound up in terms of the Order dated 01.07.2002 passed by this Court in Company Petition No.99/1998. By the said order,

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CRL.RP No. 382 of 2019

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an Official Liquidator was appointed to liquidate the dues of the Company in liquidation. The Official Liquidator on assuming control of the Company in liquidation, issued notice to the petitioners for the production of certain documents pursuant to which the petitioners produced some documents. However, the Official Liquidator alleged that the petitioners failed to produce certain other documents, filed Company Application No.300/2003 before this Court and the said Application was dismissed as not maintainable. A private complaint in PCR No.119/2007 was filed by the respondent No.1 alleging that the petitioners had committed an offence punishable under Section 538(1)(c) of the Act of 1956.

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The Trial Court took cognizance of the offence and registered the aforesaid complaint as C.C. No.114/2008 and secured the presence of the petitioners, who were enlarged on bail. The substance of accusation was read over to the petitioners, who pleaded not guilty and claimed to be tried. An Assistant in the office of the official liquidator was examined as PW.1 and documents as per Exs.P1 to P12 were marked. The petitioners herein confronted Exs.D1 to D4 to PW.1 and the same were admitted and hence, marked. The statements of

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5 - CRL.RP No. 382 of 2019

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petitioners herein under Section 313 of the Cr.P.C. were recorded and they denied the incriminating evidence against them. However, they did not lead any oral evidence in their defence.

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Based on the oral and documentary evidence on

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record, the Trial Court held that the petitioners herein were guilty of the offence punishable under Section 538(1)(c) of the Act of 1956 read with Rule 9 of the Rules of 1959 and hence, convicted them for the said offence and sentenced them to undergo imprisonment for a period of two years and to pay fine of Rs.5,000/- each.

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The petitioners being aggrieved by the said Judgment of conviction, filed Criminal Appeal No.1448/2014. The Appellate Court too confirmed the Judgment of conviction and order of sentence passed by the Trial Court.

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Being aggrieved by the above, petitioners have filed this revision petition.

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Learned counsel for the petitioners submitted that the power to institute any criminal proceedings against petitioners is circumscribed by Section 457 of the Act of 1956

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6 - CRL.RP No. 382 of 2019

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and therefore, the instant prosecution of the petitioners by the Official Liquidator without the required sanction prescribed under Section 457(1)(a) of the Act of 1956 is illegal. In this regard, he relied upon the Judgment rendered by a Coordinate Bench of this Court in Crl. P. No.1159/2012 disposed off on 23.03.2021, where a Coordinate Bench was dealing with a similar case where prosecution was launched against the exDirectors of the Company in liquidation, without prior sanction of the Court. The Coordinate Bench, after considering the position of law declared by the Hon'ble Apex Court, held that the entire prosecution initiated by the Official Liquidator was faulty and hence, quashed the criminal proceedings against the petitioners therein and further granted liberty to the respondent therein to initiate proceedings against the petitioners therein for the alleged violation under Section 538(1)(c) of the Act of 1956, if they desired to do so, in accordance with law and after obtaining the sanction of the Court as required under Section 457(1)(a) of the Act of 1956. The learned counsel therefore prayed that a similar order be passed in the present case.

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CRL.RP No. 382 of 2019

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Learned counsel for the respondent No.1 submitted

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that on facts, the petitioners had failed to produce the documents despite being called upon to do so and therefore, an offence under Section 538(1)(c) of the Act of 1956 was made out against them. He submitted that not obtaining sanction of the Court is only an irregularity which does not vitiate the prosecution initiated against the petitioners, unless the petitioners showed that they were prejudiced by such noncompliance.

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I have considered the submissions made by the learned counsel for the petitioners as well as learned counsel for the respondent No.1. I have perused the records of the Trial Court and also its Judgment as well as the Judgment of the Appellate Court.

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A coordinate Bench of this Court in Crl.P. No.1159/2012 (supra) while considering the fact of noncompliance of Section 457(1)(a) of the Act of 1956, referred to the Judgment of the Hon’ble Apex Court in Jaswantrai Manilal Akhaney v. State of Bombay [(1956) 26 Comp Cas 340] as well as the Judgment of the Andhra Pradesh High Court

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8 - CRL.RP No. 382 of 2019

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in Official Liquidator v. T.J. Swamy and Others [(1992) 73

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Comp Cas 583] and held that there is no escape from complying Section 457(1)(a) of the Act of 1956 before initiating any criminal prosecution against the ex-directors of a Company under liquidation. It is pertinent to emphasize that the purpose of Section 457(1)(a) of the Act of 1956 is to ensure that the Court to whom the Official Liquidator has to answer, is kept informed about the proceedings concerning any matter pertaining to the Company in liquidation. The Judgments referred above applies on all fours to the facts of this case.

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Under the circumstances, the instant prosecution initiated against the petitioners is without following a substantive requirement of law and the same has vitiated the proceedings initiated against the petitioners / accused Nos.1 and 4 in C.C. No.114/2008.

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12 In that view of the matter, the impugned Judgment of conviction and Order of Sentence passed by the Trial Court in C.C. No.114/2008 in so far as it relates to accused Nos.1 and 4 / petitioners herein which has been upheld by the Appellate Court in Criminal Appeal No.1448/2014 warrants interference.

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CRL.RP No. 382 of 2019

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Consequently, this petition is allowed. The Judgment of conviction and Order of sentence dated 26.11.2014 passed by the Presiding Officer, Special Court for Economic Offences, Bengaluru, in C.C. No.114/2008 in so far as the petitioners herein are concerned is set aside. Likewise, the Judgment dated 18.02.2019 passed by the LXIV Additional City Civil and Sessions Judge, Bengaluru City, in Criminal Appeal No.1448/2014 is also set aside. However, as held by a Coordinate Bench of this Court in Criminal Petition No.1159/2012 (supra), the respondent No.1 is at liberty to initiate proceedings against the petitioners herein for the alleged violation of Section 538(1)(c) of the Act of 1956, if they so desire, in accordance with law and after duly obtaining the sanction of the Court as required under law. All other contentions of the parties are kept open.

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Sd/JUDGE

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SMA

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List No.: 1 Sl No.: 28

N T Sebastian v. the Official Liquidator of

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N T Sebastian v. the Official Liquidator of

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