Section 138 of NI Act not affected by winding-up order

A Division Bench of Bombay High Court has held that the expression “suit or other proceedings” in Section 446(1) under chapter II of Part VII of Companies Act, 1956, does not include criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 The Bench comprising of Justices Dr.Shalini Phansalkar Joshi and Dharmadhikari was answering a reference from a Single Judge to resolve a conflict between two views recorded in two Single Judges’ Judgments of Bombay High Court. Before the Single Judge, two decisions of Coordinate Benches of High Court were placed taking divergent views on the application of Section 446(1) of the Act to the proceedings under Section 138 of the N.I. Act, viz. (i) in the matter of Firth (India) Vs. Steel Co. Ltd. (In Liqn.), decided on 4th September 1998 [Coram : F.I. Rebello, J.], reported in AIR 1999 Bombay 75, taking a view that Section 446(1) of the Companies Act is not applicable to proceeding under Section 138 of N.I. Act; and (ii) unreported decision dated 13th February 2007 in Suresh K. Jasani Vs. Mrinal Dyeing and Manufacturing Company Limited & Ors. in Criminal Revision Application No.245 of 1997 [Coram : J.H. Bhatia, J.], taking a view that Section 446(1) of Companies Act applies to proceedings under Section 138 of N.I. Act also. The Bench held that the provisions of Section 446(1) of the Companies Act are to be invoked judiciously only when it has got any concern with either the winding-up proceedings or with the assets of the Company. The expression “suit or other proceedings”, therefore, as used in Section 446(1) of the Companies Act, has to be construed accordingly and not to be interpreted so liberally and widely so as to include each and every proceeding of whatsoever nature initiated against the Company, including even the criminal proceedings like for the offence under Section 138 of N.I. Act, which has got no bearing on the winding-up proceedings of the Company and are not concerned with, directly with the assets of the Company, but are mainly dealing with the penal and personal liability of the Directors of the Company. Finally the Division Bench concluded as follows “In our considered opinion, having regard to the earlier decisions referred above, taking a consistent view, which is in consonance with the spirit, purpose and object of the provisions of Section 446(1) of the Companies Act and Section 138 of the Negotiable Instruments Act, we uphold the view taken by the Single Judge in the matter of Firth (India) (Supra) and accordingly proceed to answer the Reference placed for our consideration, as follows :- “The expression “suit or other proceedings” in Section 446(1) under chapter II of Part VII of Companies Act, 1956, does not include criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881.”