Case Note & Summary
The matter arose from a scheme of compromise and arrangement proposed by Europlast India Ltd. under Section 391 of the Companies Act, 1956. The unsecured creditors, including fixed deposit holders and liquinote holders, had on 14 October 2000 approved a scheme involving sale of land and factory building at Khopoli to pay of claims. The Company Petition No. 327 of 2001 was filed under Section 391 and was disposed of by the Company Judge on 18 July 2001, sanctioning the scheme. Prior to that, on 9 June 2000, an ad-interim stay on criminal proceedings in C.R. No. 45 of 2000 pending before the Special Judge under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999 was granted by this Court (Bobde, J.). Thereafter, several Company Applications and Show Cause Notices were taken out, including Company Application (L) No. 673 of 2003, Company Application (L) No. 75 of 2002, Company Application No. 139 of 2002, Company Application No. 1530 of 2008, and Show Cause Notice Nos. 1 of 2008 and 1 of 2009, arising from Chairman’s Reports dated 31 March 2008 and 14 July 2008. These matters came up before the Court for common disposal. One of the key issues was whether the criminal proceedings could continue despite the sanctioned scheme. The counsel for a creditor sought vacation of the stay so that the criminal proceedings under the special Act could proceed, arguing they were distinct from the civil scheme. The company’s counsel did not object to continuation but prayed that no arrest of directors be permitted. The Court, relying on the ratio in UMA Investments Pvt. Ltd. (1977) 47 Company Cases 242, held that criminal proceedings can be commenced or continued notwithstanding initiation of a scheme under Section 391. It directed that criminal law must take its own course and the proceedings be completed expeditiously. Consequently, the ad-interim stay was vacated, and all pending applications, show cause notices, and Chairman’s reports were disposed of accordingly.
Headnote
A) Company Law - Scheme of Compromise and Arrangement - Section 391 Companies Act, 1956 - Continuation of Criminal Proceedings - Criminal proceedings under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999 are independent of civil proceedings for scheme of compromise; sanction of scheme does not bar such prosecutions and they should be allowed to proceed expeditiously to let criminal law take its own course. The Court relied on UMA Investments Pvt.Ltd. (1977) 47 Comp Cas 242, and vacated the ad-interim stay granted earlier, directing expeditious completion of criminal proceedings. (Paras 2-3)
Issue of Consideration
Whether criminal proceedings under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999 can continue after sanction of scheme of compromise under Section 391 of the Companies Act, 1956; and related directions on disposal of pending applications and show cause notices.
Final Decision
The Court held that criminal proceedings under the Maharashtra Protection of Interest of Depositors Act, 1999 are not barred by the sanction of a scheme under Section 391. Relying on UMA Investments, it directed that criminal law must take its own course and the proceedings should be completed expeditiously. The ad-interim stay was vacated. All pending applications, show cause notices, and Chairman's reports were disposed of in terms of this common order.
Law Points
- Criminal proceedings under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act
- 1999 are independent of civil scheme of compromise under Section 391 of the Companies Act
- 1956
- sanction of scheme does not bar such prosecutions and they should be allowed to proceed expeditiously to let criminal law take its own course.
Case Details
2010 LawText (BOM) (01) 255
Show Cause Notice No.1 of 2008 With Show Cause Notice No.1 of 2009 In Chairman’s Report Dated 14th July, 2008 In Company Application (Lodging) No. 673 of 2003 In Company Petition No. 327 of 2001 with connected matters
Mr. Pankaj S. Shah, Mr. Ram Apte, Mr. A.A. Garge, Mr. Satish Shah, Mr. A.C. Tamhane, Mr. Vishal Kanade, Mr. Shahzad Qazi, Mr. Anant Narayan, Ms. Deepali Deshmukh, Mr. R.N. Pareek, Mr. N.J. D’Monte, Mr. B.G. Tangsali, Mrs. P.U. Badadare, Ms. Annie Fernandes, Mr. A.P. Kothari
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Nature of Litigation
Show cause notices and applications in Chairman's reports regarding implementation of a scheme of compromise and arrangement of Europlast India Ltd. under Section 391 of the Companies Act, 1956, with a collateral issue on continuation of criminal proceedings under the Maharashtra Protection of Interest of Depositors Act, 1999.
Remedy Sought
Directions for implementation of the sanctioned scheme and vacation of stay on criminal proceedings.
Filing Reason
Pending applications and show cause notices arose out of issues in implementing the sanctioned scheme and the need to address the continuation of criminal proceedings.
Previous Decisions
Company Petition No. 327 of 2001 was disposed of on 18-07-2001 sanctioning the scheme of compromise; ad-interim stay on criminal proceedings in C.R. No. 45 of 2000 granted by Bobde, J. on 09-06-2000.
Issues
Whether criminal proceedings under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999 can continue after sanction of scheme of compromise under Section 391 of the Companies Act, 1956.
Whether the ad-interim stay on criminal proceedings should be vacated.
Submissions/Arguments
Counsel for a creditor argued that criminal proceedings under the special statute are distinct from civil scheme proceedings and should continue independently.
Counsel for the company did not object to continuation of criminal proceedings but prayed that no arrest of directors/employees be permitted.
The Court was referred to the decision in UMA Investments Pvt. Ltd. that criminal proceedings can be initiated or continued despite a scheme under Section 391.
Ratio Decidendi
Criminal proceedings under the Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999 are distinct from civil proceedings under Section 391 of the Companies Act, 1956; the sanction of a scheme of compromise does not bar the continuation of such criminal proceedings, which must proceed expeditiously to let criminal law take its own course.
Judgment Excerpts
the criminal proceedings can be commenced or continued notwithstanding the fact that the scheme was compromised or arrangement has been initiated under section 391
If the criminal proceedings are commenced they should be allowed to complete as expeditiously as possible and to let the criminal law take its own course and criminal proceedings should not be held up because civil proceedings are initiated and are pending.
There is no reason why the criminal proceedings should not be allowed to be completed in accordance with law.
Procedural History
14-10-2000: Unsecured creditors passed resolution approving scheme of compromise. 09-06-2000: Bobde, J. granted ad-interim stay on criminal proceedings in C.R. No. 45/2000 under the Maharashtra Protection of Interest of Depositors Act. 18-07-2001: Company Judge sanctioned the scheme and disposed of Company Petition No. 327 of 2001. Thereafter, various Company Applications and Show Cause Notices were filed: Company Application (L) No. 673 of 2003, Company Application (L) No. 75 of 2002, Company Application No. 139 of 2002, Company Application No. 1530 of 2008, Show Cause Notice No. 1/2008 and Show Cause Notice No. 1/2009 based on Chairman's Reports dated 31-03-2008 and 14-07-2008. 07-01-2010: Common order disposing of all pending matters.
Acts & Sections
- Companies Act, 1956: 391
- Maharashtra Protection of Interest of Depositors (Finance Establishment) Act, 1999:
