Case Note & Summary
The case involves three criminal applications filed by the directors of Man Industries (India) Limited (MIIL) seeking quashing of notices and process issued under section 127 of the Companies Act, 2013 for non-payment of dividends to a shareholder. The complainant, a shareholder from the JCM group, alleged that the company declared a dividend in the AGM dated 12.12.2015 but failed to pay him, while all other shareholders were paid. The applicants, who are directors from the RCM group and independent directors, argued that the non-payment was due to a pending dispute between the two groups regarding the right to receive the dividend, and they sought protection under section 127(c) of the Companies Act, 2013. The Sessions Judge, Bombay, by order dated 30.1.2017, issued process and summons against accused Nos.1 to 7. The applicants contended that the process was issued without considering the defence under section 127(c). The court analyzed the provisions of section 127, which penalizes failure to distribute dividends within 30 days, but noted that section 127(c) provides an exception where there is a dispute regarding the right to receive the dividend. The court found that the dispute between the JCM and RCM groups was admitted and that the complainant's right to the dividend was contested. Therefore, the court held that the defence under section 127(c) was applicable and quashed the process and summons. The court emphasized that the magistrate must consider the defence before issuing process and that the non-payment was not willful but due to the pending dispute.
Headnote
A) Criminal Law - Quashing of Process - Section 127 Companies Act, 2013 - Non-payment of Dividend - The court considered whether the process issued under section 127 of the Companies Act, 2013 for non-payment of dividend should be quashed when the non-payment was due to a pending dispute between shareholder groups regarding the right to receive the dividend. The court held that the defence under section 127(c) of the Companies Act, 2013, which allows non-payment if there is a dispute regarding the right to receive the dividend, must be considered before issuing process. The court quashed the process and summons issued by the Sessions Judge. (Paras 1-3)
Issue of Consideration
Whether the process and summons issued under section 127 of the Companies Act, 2013 without taking into account the provision of section 127(c) of the Companies Act can be granted
Final Decision
The court allowed the applications and quashed the notices and order of issuance of process dated 30th January, 2017 passed by the Sessions Judge, Bombay in Company Petition Nos.2 to 7 of 2016.
Law Points
- Section 127(c) of the Companies Act
- 2013 provides a defence for non-payment of dividend if there is a dispute regarding the right to receive the dividend
- and the court must consider such defence before issuing process
Case Details
Criminal Application No. 949 OF 2017, Criminal Application No.950 OF 2017, Criminal Application No. 411 OF 2017
Mr. Mayur Khandeparkar a/w. Gandhar U. Raikar, Siddhesh S. Borkar I/b. Madhukar Pandurang Dalvi for the applicants; Mr. A.R. Patil, APP for the Respondent – State; Mr. Kushal Mor a/w. Mr. Mayank Sharma for the respondents
Man Industries (India) Ltd. & Ors., Heena Vinay Kalantri & Ors., Kirit Navinitlal Damania & Ors.
The State of Maharashtra & Ors.
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Nature of Litigation
Criminal applications for quashing of process and summons issued under section 127 of the Companies Act, 2013 for non-payment of dividend
Remedy Sought
The applicants (directors of MIIL) sought quashing of notices and order of issuance of process dated 30th January, 2017 passed by the Sessions Judge, Bombay
Filing Reason
The applicants were accused of non-payment of dividends to the complainant shareholder, but they claimed protection under section 127(c) of the Companies Act due to a pending dispute regarding the right to receive the dividend
Previous Decisions
The Sessions Judge, Bombay by order dated 30.1.2017 issued process and summons under section 127 of the Companies Act against accused Nos.1 to 7
Issues
Whether the process and summons issued under section 127 of the Companies Act, 2013 without taking into account the provision of section 127(c) of the Companies Act can be granted
Submissions/Arguments
The applicants argued that the non-payment of dividend to the complainant was due to a pending dispute between the JCM and RCM groups regarding the right to receive the dividend, and they sought protection under section 127(c) of the Companies Act, 2013.
The respondent State and complainant opposed the applications, arguing that the process was validly issued.
Ratio Decidendi
The court held that section 127(c) of the Companies Act, 2013 provides a defence for non-payment of dividend if there is a dispute regarding the right to receive the dividend. Since the dispute between the JCM and RCM groups was admitted and the complainant's right to the dividend was contested, the defence under section 127(c) was applicable, and the process issued without considering this defence was liable to be quashed.
Judgment Excerpts
Whether the process and summons issued under section 127 of the Companies Act without taking into account the provision of section 127(c) of the Companies Act can be granted is the issue.
The accused RCM did not pay dividend to the complainant only on account of pendency of the dispute between the parties and, therefore, by taking protection under section 127(c) of the Companies Act, the dividends are not distributed to the complainant.
Procedural History
The Sessions Judge, Bombay issued process and summons under section 127 of the Companies Act, 2013 on 30th January, 2017 in Company Petition Nos.2 to 7 of 2016. The applicants filed criminal applications before the High Court of Bombay seeking quashing of the process and summons.
Acts & Sections
- Companies Act, 2013: 127, 127(c)
