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Kanailal Jatia And Others Accused- v. Ramkrishnadas Gupta Opposite Party.
Structured Summary of the Opinion (Revision Cases Nos. 750 & 751 of 1957)
Factual and Procedural Background
Two petitions for revision arise from complaints filed by the opposite party, Ram Krishnadas (Ram Krishna) Gupta, on behalf of two companies — J.K. Eastern Industries (Private) Ltd. (Case No. C-894 of 1957; Revision Case No. 750 of 1957) and Reform Flour Mills (Private) Ltd. (Case No. C-895 of 1957; Revision Case No. 751 of 1957). The petitioners are five persons (petitioners Nos. 1–5) who were, prior to 11 May 1957, directors (petitioners Nos. 1–4) and a secretary (petitioner No. 5) of the companies.
An extraordinary general meeting was ordered and held (under the chairmanship of Sir S.M. Bose) which led to resolutions removing petitioners Nos. 1–4 as directors and revoking powers of petitioner No. 5 (Ram Karan Poddar). The companies (through solicitors) then requisitioned that the petitioners hand over possession of company assets, books, documents and money to designated persons on 11 June 1957. The petitioners allegedly refused to comply (and petitioner No. 5 is said to have absented himself and later refused by letter).
On 8 July 1957 the Chief Presidency Magistrate issued summonses under Section 630 of the Companies Act and under Section 424 of the Indian Penal Code in each case, and also issued search warrants for seizure of books and documents. Petitioner No. 1 gave an undertaking to produce books and sought withdrawal of the search warrants; the Magistrate recalled the warrants and ordered production of the listed books by 10 July 1957. Instead of producing the documents, the petitioners moved the High Court to quash the Magistrate's orders issuing the summonses.
Legal Issues Presented
- Whether the High Court should quash the orders of the Chief Presidency Magistrate issuing summonses against the petitioners under Section 630 of the Companies Act and Section 424 of the Indian Penal Code.
- Whether the petitions of complaint disclose a prima facie offence under Section 630 of the Companies Act.
- Whether the petitions of complaint disclose a prima facie offence under Section 424 of the Indian Penal Code (fraudulent concealment or removal of property).
- Whether the extraordinary general meeting and the resolutions passed therein were valid or void (i.e., whether the petitioners can assert the resolutions were ultra vires and not binding) — raised by the petitioners but whether it can be decided at this stage.
- Whether the opposite party was competent to institute the complaints under the Companies Act (a competency point was raised).
- Whether the search warrants were bad because no reasons were mentioned on them.
Arguments of the Parties
Petitioners' Arguments
- The resolutions purportedly passed on 11 May and 11 June 1957 were not validly and lawfully passed and were ultra vires the Companies Act.
- Acts done by Messrs Khaitan & Co., solicitors, on behalf of newly appointed directors pursuant to those resolutions were not binding on the petitioners.
- The petitioners (Nos. 1–4) intended to (and, according to counsel, had) filed suits in the Original Side of the High Court challenging the validity of the meeting and resolutions.
- It was asserted that the opposite party was not a competent person to file a complaint under the Companies Act.
- As an ancillary point (not pressed), it was contended that the search warrants were defective because they did not contain reasons for their issue.
Opposite Party's Allegations / Position
- The opposite party (Ram Krishnadas Gupta) filed the complaints on behalf of the two companies, alleging that petitioners refused to hand over possession of the company's assets, books, documents, furniture and money after being removed as directors/secretary.
- Specifically it was alleged that petitioners Nos. 1–4 refused to hand over assets to the persons authorized to receive them, and petitioner No. 5 absented himself and, by a later letter, refused to comply with the requisition.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Manicklal Mondal v. State, 56 Cal WN 551 : AIR 1953 Cal 341 | The decision was cited in relation to the contention that search warrants were bad because no reasons were stated on them. | The Court stated that the point (that warrants without reasons are bad) is "now fully covered by the decision" in Manicklal Mondal v. State and held that there was no substance in the ground raised about the absence of reasons on the search warrants. |
Court's Reasoning and Analysis
The Court proceeded by distinguishing matters that can be decided at the interlocutory stage from those requiring trial. It noted that none of the cases had progressed beyond the stage where summonses had been issued, and, except for petitioner No. 1, the other petitioners had not submitted to the jurisdiction of the Magistrate. Ordinarily, the applications of those who have not submitted would not be entertained; but because petitioner No. 1 had undertaken to produce the books, the Court considered the matters.
The Court emphasized the general proposition that disputed factual matters and controversies cannot be resolved at the stage of considering a petition to quash when no evidence has yet been adduced. It stated that the facts set out in the petition may constitute the petitioners' defence at trial, but the Court could not determine or quash proceedings on controversial facts without evidence. The Court expressly refrained from expressing any opinion on the merits of the petitioners' claims.
Turning to the legal sections invoked, the Court examined whether the complaints disclosed prima facie offences under Section 630 of the Companies Act and Section 424 of the Indian Penal Code.
On Section 630 (Companies Act) the Court quoted the relevant portion permitting punishment where an officer or employee "having any such property in his possession wrongfully withholds it" and noted that in both complaints the company itself (J.K. Eastern Industries (Private) Ltd.) had filed the complaint. Accordingly, the competency of the opposite party to institute the complaints did not arise on the facts before the Court. The Court observed that Section 621 (a bar to taking cognizance of certain offences except at the instance of specified persons) raised an arguable point which had not been pressed; a proviso to Section 621(1) might save the Magistrate's cognizance, but because the point had not been raised and evidence had yet to be recorded, the Court did not decide it. On the present state of the record the Court was "not prepared to say" that a case under Section 630 had not been made out.
Regarding Section 424 IPC, the Court found the material in the complaints to be "very slender" — allegations amounted to a refusal to part with assets, books and documents. Whether such refusal, even if dishonest, constituted fraudulent concealment or removal of property could not be determined without evidence. The Court noted that the Magistrate would have to consider the evidence to determine what offence, if any, had been committed. The mere presence of section numbers on summonses did not establish that offences under those sections had been committed nor preclude the possibility that evidence of other offences could be led.
As to the contention that search warrants were bad because reasons were not stated, the Court held there was "no substance" in that ground, relying on the earlier decision in Manicklal Mondal v. State to cover the point.
Holding and Implications
Holding: The Court's final disposition was that the two rules seeking to quash the Magistrate's orders were DISCHARGED (i.e., the petitions to quash were dismissed).
Implications:
- The Magistrate's summonses are not quashed at this interlocutory stage; the cases will proceed to be heard on their merits before the trial Court (Magistrate), who must consider the evidence to determine whether offences under Section 630 of the Companies Act and/or Section 424 IPC are made out.
- The Court declined to decide contested factual questions (validity of the extraordinary general meeting and resolutions, and related ultra vires contentions) at this stage, stating such issues are primarily for trial and for the trial court to determine on evidence.
- The point about the competency of the complainant (and the possible bar under Section 621) was noted as arguable but not decided because the issue was not pressed and evidence had not yet been recorded.
- The ground that search warrants were defective for lacking reasons was rejected, the Court finding the point covered by existing precedent (Manicklal Mondal v. State).
- The Court directed that the matters be heard "as expeditiously as possible." The opinion expressly refrained from expressing any view on the merits, and thus did not purport to lay down any new legal precedent beyond applying existing authority to the search-warrant point.
Result: Rules discharged. The matters were ordered to proceed for prompt hearing before the Magistrate.
End of summary.
1. These two rules arise out of two petitions of complaint filed by the opposite party Ram Krishna Dass Gupta against the five petitioners before the Chief Presidency Magistrate, Calcutta, charging them with having committed offences under's. 630 of Companies Act and under S. 424 of the Indian Penal Code. The petitioners now pray for quashing the orders of the Presidency Magistrate issuing summonses against them.
2. As the points involved are identical in both the rules, they will be dealt with together as hereunder.
3. Revision Case No. 750 of 1957 arises out of a Case No. C-894 of 1957. In this case the opposite party Ram Krishna Gupta instituted the complaint on behalf of J.K Eastern Industries (Private) Ltd. Revision Case No. 751 of 1957 arises out of Case No. C-895 of 1957 where the same opposite party instituted the case on behalf of Reform Flour Mills (Private) Ltd. The accused persons in both the matters are the same. In Revision Case No. 750 of 1957 the opposite party Ram Krishnadas Gupta on behalf of J.K Eastern industries (Private) Ltd., complains against the petitioners in substance as follows: Prior to 11th of May 1957, petitioners Nos. 1 to 4 were Directors of J.K Eastern Industries (Private) Ltd., and petitioner No. 1 K.L Jatia was the Chairman of the Board of Directors. On an application made by Messrs Bengal and Assam Investors Ltd., a share-holder of the Company, P.B Mukharji, J., by an order dated the 19th of March 1957, directed the holding of an extraordinary general meeting of the said Company under the Chairmanship of Sir S.M Bose, Advocate-General of West Bengal. At the meeting that followed several resolutions were passed by which the petitioners Nos. 1 to 4 who were Directors were removed from their offices with immediate effect and in their places other gentlemen were appointed. The complainant-opposite party was appointed an additional Director of the Company.
4. By a resolution passed by the Board of Directors of the Company on the 6th of June 1957, all powers granted to opposite party No. 5, Ram Karan Poddar, who was the Secretary of the Company were cancelled and his authority to act as such was revoked.
5. On the following day, the Company through their solicitors informed the petitioners Nos. 1 to 4 of the resolutions passed and called upon them to hand over possession of the assets of the Company to the opposite party Ram Krishnadas Gupta and another Lakshman Prosad Maitin on the 11th of June 1957, at 12 noon. Petitioner No. 5 Ram Karan Poddar was also similarly informed and asked to hand over all books, documents, papers, furniture, fixtures, pass books and cash money belonging to the Company and in his possession to the opposite party and Lakshman Prosad Maitin. It is alleged that the petitioner-Directors refused to hand over possession of the assets of the Company to Lakshman Prosad Maitin who was accompanied by an assistant of the firm of Messrs Khaitan and Co., Solicitors. Petitioner No. 5 Ram Karan Poddar, it is stated, absented himself intentionally and later on by a letter refused to comply with the requisition.
6. In Criminal Revision Case No. 751 of 1957 the complaint was made by the opposite party on behalf of Reform Flour Mills (Private) Ltd. The petition of complaint narrates, in substance, that J.K Eastern Industries (Private) Ltd., of which the complainant is a Director is the Managing Agent of the Reform Flour Mills (Private) Ltd., a private limited company registered under the Indian Companies Act. Petitioners Nos. 1 to 4 were, prior to the 11th of May 1957, Directors of the Reform Flour Mills (Private) Ltd., and at all material times prior to 11th May 1957, the petitioners Nos. 1 to 4 were also Directors of the Managing Agency Company. Opposite party No. 1 Kanailal was stated to be the nominee of the Managing Agents and also the Chairman of the Board of Directors of both the Reform Flour. Mills (Private) Ltd. and J.K Eastern Industries (Private) Ltd.
7. The events narrated thereafter were the same as those stated in the complaint in the other case, namely, the removal from the offices as Directors of the four petitioners as a result of the resolution passed by the extraordinary general meeting on the 11th May 1957, under the Chairmanship of Sir S.M Bose and their replacement by others and the revocation of all powers granted to petitioner No. 5 Ram Karan Poddar who was also the Secretary of the Reform Flour Mills (Private) Ltd. Then followed the reiteration of the events leading to the refusal to make over the assets, documents, furniture and moneys of the said Reform Flour Mills (Private) Ltd.
8. Upon these two complaints, both filed on the 8th of July 1957, the Chief Presidency Magistrate issued summonses under Section 630 of the Companies Act and under S. 424 of the Indian Penal Code in each and also search warrants for the seizure of books and documents, etc.
9. After the above orders were passed the petitioner No. 1 Kanailal Jatia on the very day made an application in each case to the Chief Presidency Magistrate giving an undertaking to produce the books of account in Court and praying further for the withdrawal of the search warrants. Upon this the learned Chief Presidency Magistrate recalled the search warrants and directed the petitioner to produce all books mentioned in the list filed with the petition of complaint by the 10th of July 1957, without fail.
10. Instead of producing the document before the Magistrate in accordance with the undertaking given before him, the petitioners moved this Court against the order passed in each case on the 8th July 1957, asking for the quashing of the same.
11. In the revision petitions, the petitioners have challenged the resolutions purported to have been passed on the 11th of May and 11th June 1957, as not having been validly and lawfully passed. They have also asserted that the said resolutions are ultra vires the Companies Act and any acts done by Messrs Khaitan Co., Solicitors, on behalf of the newly appointed Directors in pursuance of the illegal and void resolutions, were not binding upon the petitioners. They have further stated that the petitioners Nos. 1 to 4 were immediately going to file a suit in the Original Side of the High Court challenging the validity of the said meeting. During the hearing of the rule, Mr. Choudhury appearing on behalf of the petitioners informed me that the suits have already been filed.
12. It was further stated that the opposite party was not a competent person to file a complaint under the Companies Act.
13. It will be noticed that none of the cases have proceeded beyond the stage of summonses having been issued. Save petitioner No. 1, the other petitioners have not even submitted to the jurisdiction of the Court. The applications so far as they are concerned should not ordinarily be entertained at all but since the petitioner No. 1 has by a petition undertaken to produce the books, I will consider the entire matter now before me. There can hardly be any ground to quash a complaint made in Court on which cognizance had been taken unless, of course, the petition of complaint does not disclose any offence at all. Disputed matters can never be decided at this stage when no evidence at all has been gone into.
14. Whether the extraordinary general meeting of the Company was held in accordance with law and whether the various resolutions passed therein were void and not binding on the petitioners and similar other questions raised before me cannot be decided at this stage. The facts stated in the petition on which this Court has been moved for quashing the proceedings will constitute, I presume, the defence of the petitioners in case they have to stand their trial. These facts may be true and may be found to be a complete answer to the charges leveled against the petitioners. It is impossible for this Court to determine the cases merely on certain statements made in the petition before it. I am expressing no opinion on the merits of the petitioners' claim but I can hardly quash the proceedings on controversial facts the determination whereof is primarily the business of the trial Court if and when these are properly brought on record.
15. The only question, therefore, that calls for my consideration at this stage is whether the petitions of complaint disclose prima facie any offence under Section 630 of the Companies Act and under S. 424 of the Indian Penal Code. The relevant portion of Section 630 of the Companies Act is as follows:
“630. (1) If any officer or employee of a company………. (b) having any such property in his possession wrongfully withholds it………. he shall, on the complaint of the company or any creditor or contributory thereto be punishable……’’
16. In both these cases complaint has been filed by J.K Eastern Industries (Private) Ltd. The competency of the opposite party in instituting the complaints cannot, therefore, in the facts now before me, arise. In this connection a ground not taken in either of the petitions does probably arise and need consideration. Section 621 of the Act is a bar to taking cognizance by a Court of certain offences except at the instance of certain specified persons. There is, however, a proviso to sub-s. (1) of S. 621 which perhaps saves the cognizance already taken by the learned Magistrate. As the point has not been raised, it is not necessary for me to decide it and in any event it cannot be decided when the evidence of the complainant on the point has yet to be recorded by the Magistrate. I am not prepared to say on the present state of records that on the petitions of complaint a case under Section 630 of the Companies Act has not been made out.
17. As for the offence under S. 424 of the Indian Penal Code, the materials disclosed in the petitions of complaint are very slender. The allegations merely are that the opposite parties refused to part with their assets, books, documents, etc., of the Company. Whether this refusal, even if dishonest, will amount to fraudulent concealment or removal of property cannot also be decided now in the absence of evidence. I have no doubt that the learned Magistrate will consider the evidence before him in order to determine what offence, if any, has been committed. The mere mention of certain sections on the summonses does not mean that offences under those sections have been committed nor does it mean that evidence of the commission of other offences cannot be given.
18. Lastly, in the petition another ground has been taken, although not pressed, that inasmuch as no reasons were mentioned on the search warrants for their issue, the warrants themselves are bad.
19. There is no substance in this ground and the point is now fully covered by the decision of Harries, C.J and S.R Das Gupta, J. in the case of Manicklal Mondal v. State, 56 Cal WN 551 : (AIR 1953 Cal 341) (A).
20. In these circumstances, the two rules are discharged. I direct that the matters be heard as expeditiously as possible.
V.S.B
21. Rules discharged.
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