Supreme Court Upholds Company’s Right to Recover Property from Ex-Director: Hooghly Mills Company Ltd. vs. State of West Bengal (2019)

Introduction

Date of the Judgment: 17 October 2019

Citation: [Not Available in Source]

Judges: Mohan M. Shantanagoudar, J., Ajay Rastogi, J.

Can a company use criminal proceedings to recover property from a former director, even when a civil suit about the same property is ongoing? This was the core question before the Supreme Court in a recent case. The Court had to decide if a company could use Section 630 of the Companies Act, 1956 to reclaim property from a former director, despite a pending civil suit and a temporary injunction. The judgment was delivered by a two-judge bench comprising Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi, with Justice Shantanagoudar authoring the opinion.

Case Background

The case involves a property dispute between Hooghly Mills Company Ltd. (the appellant) and its former director, Mr. Bal Binode Bajoria (the 2nd respondent). The company had entered into an agreement on 26 April 2008 to purchase a flat. According to the agreement, the company was to take possession of the property and pay a monthly rent. Mr. Bajoria, who was a director of the company from 1988 to 2008, was allowed to use the property from 1 May 2008. However, after he was voted out of the board on 22 November 2008, he refused to vacate the property despite requests from the company. The company then filed a criminal complaint against him on 11 August 2009 under Section 630(1) of the Companies Act, 1956, and later an application on 29 April 2010 under Section 630(2) for his eviction. Mr. Bajoria claimed he had an oral agreement with the previous owner of the property, his cousin, to purchase it, and that he had been in possession of the property since 1994. He also filed a civil suit for specific performance against the vendors, and obtained a temporary injunction to maintain the status quo on the property.

Timeline:

Legal Framework

The core legal provision in this case is Section 630 of the Companies Act, 1956, which deals with the wrongful withholding of company property. The section states:

“630. Penalty for wrongful withholding of property.
(1) If any officer or employee of a company-
(a) wrongfully obtains possession of any property of a company; or
(b) having any such property in his possession, wrongfully withholds it or knowingly applies it to purposes other than those expressed or directed in the articles and authorised by this Act;
he shall, on the complaint of the company or any creditor or contributory thereof, be punishable with fine which may extend to one thousand rupees.
(2) The Court trying the offence may also order such officer or employee to deliver up or refund, within a time to be fixed by the Court, any such property wrongfully obtained or wrongfully withheld or knowingly misapplied, or in default, to suffer imprisonment for a term which may extend to two years.”

This section allows a company to take action against an officer or employee who wrongfully holds company property. It provides both a penalty (fine) and a mechanism for the court to order the return of the property. The Supreme Court has interpreted this provision to facilitate the expeditious recovery of company property.

Additionally, Section 41 of the Specific Relief Act, 1963 was also considered which states:

“41. Injunction when refused. —An injunction cannot be granted—
…(b) to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought;…
(d) to restrain any person from instituting or prosecuting any proceeding in a criminal matter…”

Arguments

Appellant’s Arguments:

• The appellant argued that the High Court was wrong to deny their claim for possession just because a sale deed was not executed.
• They pointed out that the 2nd respondent himself admitted to delivering the original title documents of the property to the company, indicating that the company had a right to the property.
• The appellant argued that clause 6 of the agreement for sale dated 26.4.2008 created a monthly tenancy in their favor, giving them a right to possess the property.
• They cited Atul Mathur v. Atul Kalra, (1989) 4 SCC 514, where the Supreme Court granted relief to a company even when the property was taken on a leave-and-license basis.
• The appellant also contended that the civil suit between the 2nd respondent and the vendors was not binding on the company, as the company was not a party to that suit.
• They argued that it was not necessary for the accused to be in possession of the property as a perquisite of his service for Section 630 to apply.
• The appellant submitted a certificate from LB Jha & Co Chartered Accountants dated 16.1.2018 showing that the appellant company has paid rent of Rs 91,01,700/- in respect of the disputed property from 1.1.2009 to 31.12.2017; as well as TDS certificates.

Respondent’s Arguments:

• The respondent argued that the complaint was a scheme by the appellant company, controlled by his relatives, to remove him from the property.
• He claimed that he had been in possession of the property since 1994, much before the company’s agreement with the vendors.
• He contended that the company had no title to the property, as the sale deed was unregistered.
• He stated that he was misled into handing over the title documents under the pretext of updation of records.
• The respondent argued that he was not given possession of the property as an officer of the company, and therefore, Section 630 did not apply.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether an application under Section 630(2) of the Companies Act, 1956 was maintainable, despite the pendency of a civil suit and a temporary injunction regarding the disputed property?
2. Whether an order could be made under Section 630(2) before the final disposal of the complaint under Section 630(1)?
3. If the first two issues are answered affirmatively, whether the company is entitled to seek dispossession of the 2nd respondent from the property?
4. Whether it is required that the 2nd respondent should have been in possession of the disputed property as a perquisite of his service?
5. Finally, whether, in light of the answers to the aforementioned issues, the High Court was justified in exercising its inherent powers under Section 482 of the Cr.P.C?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

On the issue of pendency of civil suit not barring criminal proceedings:

• Damodar Das Jain v. Krishna Charan Chakraborti, (1989) 4 SCC 531, Supreme Court of India
• Atul Mathur v. Atul Kalra, (1989) 4 SCC 514, Supreme Court of India

On the interpretation of Section 630 of the Companies Act, 1956:

• Baldev Krishna Sahi v. Shipping Corporation of India Limited, (1987) 4 SCC 361, Supreme Court of India
• Metal Box India v. State of West Bengal, (1997) 2 CHN 423, Calcutta High Court
• Tata Tea Limited v. Fazlur Rahman, (2001) 104 Comp Cas 718 Cal, Calcutta High Court
• Kannankandi Gopal Krishna Nair v. Prakash Chunder Juneja, (1994) 81 Comp Cas 104, Bombay High Court
• PV George v. Jayems Engineering Co. (P) Ltd, (1990) 2 Comp LJ 62 (Mad), Madras High Court

On the issue of injunctions:

• Jolly Durga Prasad v. Goodricks Group Ltd., (1999) 97 Comp Cas 698 (Cal), Calcutta High Court
• S. Palaniswamy v. Sree Janardhana Mills Ltd, (1993) 76 Com Cases 323 (Mad), Madras High Court

On the issue of inherent powers of High Court:

• Madhu Limaye v. State of Maharashtra, (1977) 4 SCC 551, Supreme Court of India

Legal Provisions:

• Section 630 of the Companies Act, 1956
• Section 41 of the Specific Relief Act, 1963
• Section 397(2) of the Criminal Procedure Code, 1973
• Section 482 of the Criminal Procedure Code, 1973

Judgment

How each submission made by the Parties was treated by the Court?

Judgment

How each authority was viewed by the Court?

• Damodar Das Jain v. Krishna Charan Chakraborti, (1989) 4 SCC 531* and Atul Mathur v. Atul Kalra, (1989) 4 SCC 514*: The Supreme Court relied on these cases to establish that the pendency of a civil suit does not bar criminal proceedings under Section 630 of the Companies Act, 1956.
• Baldev Krishna Sahi v. Shipping Corporation of India Limited, (1987) 4 SCC 361*: The Supreme Court used this case to support its interpretation of Section 630, emphasizing the need for a liberal construction to facilitate the recovery of company property. It also supported the view that the term ‘officer or employee’ in Section 630 may also take in past officers and employees.
• Metal Box India v. State of West Bengal, (1997) 2 CHN 423* and Tata Tea Limited v. Fazlur Rahman, (2001) 104 Comp Cas 718 Cal*: The Supreme Court distinguished these cases, noting that in those cases, the property had been allotted by the company as a perquisite of service, which was not a requirement for Section 630 to apply.
• Kannankandi Gopal Krishna Nair v. Prakash Chunder Juneja, (1994) 81 Comp Cas 104*: The Supreme Court referred to this case to highlight the need for a speedy mechanism for the restoration of wrongfully withheld property to companies.
• PV George v. Jayems Engineering Co. (P) Ltd, (1990) 2 Comp LJ 62 (Mad)*: The Supreme Court used this case to support its view that the term ‘property of the company’ should be construed widely.
• Jolly Durga Prasad v. Goodricks Group Ltd., (1999) 97 Comp Cas 698 (Cal)* and S. Palaniswamy v. Sree Janardhana Mills Ltd, (1993) 76 Com Cases 323 (Mad)*: The Supreme Court cited these cases to support its view that a civil court cannot restrain a criminal proceeding.
• Madhu Limaye v. State of Maharashtra, (1977) 4 SCC 551*: The Supreme Court cited this case to explain the limitations on the High Court’s inherent powers under Section 482 of the Cr.P.C.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect the interests of the company and ensure the expeditious recovery of its property. The Court emphasized that Section 630 of the Companies Act, 1956, is a beneficial provision that should be interpreted liberally to achieve its purpose. The Court was also influenced by the fact that the 2nd respondent’s claim to the property was based on an oral agreement, whereas the company had a written agreement and had been put into symbolic possession of the property. The Court also noted that the 2nd respondent had handed over the title documents to the company, acknowledging the company’s right to the property.

Fact:Law Ratio:

Logical Reasoning

Key Takeaways

• A company can initiate criminal proceedings under Section 630 of the Companies Act, 1956, to recover property from a former officer or employee, even if a civil suit regarding the same property is pending.
• The pendency of a civil suit and a temporary injunction do not bar criminal proceedings under Section 630, if there is no bona fide dispute regarding the company’s right over the property.
• An order under Section 630(2) of the Companies Act, 1956, can be made before the final disposal of the complaint under Section 630(1).
• It is not necessary that the officer or employee should have been in possession of the disputed property as a perquisite of his service for Section 630 to apply.
• The High Court’s inherent powers under Section 482 of the Cr.P.C. should be exercised sparingly and only in exceptional cases of illegality or lack of jurisdiction.
• The term ‘property of the company’ has to be construed widely having regard to the beneficial object of the Section.

Directions

The Supreme Court directed that the trial under Section 630(1) of the Companies Act, 1956, should be completed as soon as possible. The Court also clarified that if the civil court passes a decree in favor of the 2nd respondent in Suit No. 2126/2009, such decree must be honored, and possession of the disputed property may be restored to him accordingly.

Development of Law

The ratio decidendi of this case is that a company can initiate criminal proceedings under Section 630 of the Companies Act, 1956, to recover property from a former officer or employee, even if a civil suit regarding the same property is pending. The Court clarified that the pendency of a civil suit and a temporary injunction do not bar criminal proceedings under Section 630, if there is no bona fide dispute regarding the company’s right over the property. This judgment reinforces the principle that Section 630 is a beneficial provision that should be interpreted liberally to facilitate the expeditious recovery of company property. The Court also clarified that it is not necessary that the officer or employee should have been in possession of the disputed property as a perquisite of his service for Section 630 to apply. This clarifies the scope of Section 630 and ensures that companies can effectively recover their property from former officers or employees who wrongfully withhold it.