Holding

A company declared sick under SICA remains liable to prosecution under Section 138 of the Negotiable Instruments Act; the ban in Section 22(1) of SICA does not cover criminal proceedings.

Summary

The appellants, companies whose cheques were dishonoured, were prosecuted under Section 138 of the Negotiable Instruments Act. After the complaints were filed, they obtained a declaration from the Board for Industrial Finance and Reconstruction (BIFR) that they were "sick" companies under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). They argued that Section 22(1) of SICA barred any suit, including criminal prosecution, against a sick company. The Supreme Court held that the ban in Section 22(1) applies only to civil suits for recovery of money or enforcement of security and does not extend to penal proceedings under the NI Act. The Court observed that Parliament did not intend to exempt sick companies from criminal liability and that the offence under Section 138 is completed before SICA proceedings, so prosecution may continue. Consequently, the appeal and the Special Leave Petition were dismissed.

Issues considered

Whether a company declared sick under SICA is immune from criminal prosecution under Section 138 of the Negotiable Instruments Act.
Whether Section 22(1) of SICA bars the maintainability of a criminal complaint against a sick company.
Whether the term "suit" in Section 22(1) of SICA includes criminal prosecution.
Whether practical difficulties in enforcing a fine on a sick company preclude prosecution.

Legislation cited

Companies Act, 1956
Sick Industrial Companies (Special Provisions) Act, 1985s. 22(1), s. 22(3), s. 22-A

Subjects

cheque bounceSection 138 NI Actsick industrial companySICAcriminal prosecutioncorporate liabilityBIFRboard for industrial finance and reconstructionpenal provision

Judgment

,.... M/S. BSI LTD. AND ANR. A
v.
GIFf HOLDINGS PVT. LTD. AND ANR. ETC.

FEBRUARY 15, 2000

[K.T. THOMAS AND D.P. MAHOPATRA, JJ.]
B

Negotiable Instruments Act, 1872-Section 138-Dishonour of che-
ques-Complaint u/s. 138 against companies-Companies declared sick after
institution of complaints u/s 138-Whether they are liable to be prosecuted
in view of embargo contained in Section 22(1) of Sick Industrial Companies c
(Special Provisions) Ac~ 1985-Held, Yes.

Cheques issued by the appellant company and their Directors were
dishonoured by the drawee bank on the ground of insufficiency of amount
in the account concerned. A complaint was filed against the company and
D
its Directors for the offence u/s. 138 of the Negotiable Instruments Act.
Those companies, subsequent to the filing of complaints against them,
sought for declaration before the Board for Industrial Finance and
Reconstruction, that those companies became sick as envisaged in the Sick
Industrial Companies (Special Provisions) Act, 1985 and a declaration was
made by the Board as per Section 22(3) of SICA. The appellants contended E
that they were not liable to be prosecuted in view of the ban against
maintainability of a complaint u/s. 138 of the Negotiable Instruments Act,
for the recovery of amount as contained in Section 22(1) of SICA, since a
court would not be able to effectively impose a sentence on a company after
convicting it of the offence u/s. 138 of the NI Act. The appellants' case was
F
dismissed both by the trial court as well as by the High Court. Hence this
"-
appeal.

.. Dismissing the Special Leave Petition and appeal, this Court

HELD : 1.1. If commission of the offences under Section 138 of G
the Negotiable Instruments Act was completed before the commencement
of proceedings under Section 22(1) of Sick Industrial Companies (Spe-
cial Provisions) Act, there is no hurdle in any of the provisions of SICA
against the maintainability and prosecution of a criminal complaint duly,
instituted under Section 142 of the NI Act. [824-F] H
815
816 SUPREME COURT REPORTS [2000) 1 S.C.R.
.A 1.2. If Parliament intended to exempt sick companies rrom prosecu·
tion proceedings, necessary provision would have been included in Section
·-
141 or the NI Act. More significantly, when Section 22(1) or SICA was
amended in 1994 by inserting words ;'(and no suit for the recovery or money
or for enforcement or any security against industrial company or or
B guarantee in respect of any loans or advance granted to industrial com-
pany)". Parliament did not specifically include prosecution proceedings
within the ambit of the ban. [824-E]

1.3. Section 138 of the NI Act is a penal provision the commission or
which offence entails a conviction and sentence on proof of the guilt in a
C duty conducted criminal proceedings. Once the offence under Section 138
is completed the prosecution proceedings can be initiated not for recovery
of the amount covered by the cheque but for bringing the offender to penal
liability. [823-H; 824-A]

D 1.4. The word "suit" envisaged in Section 22(1), SICA, cannot be
stretched to criminal prosecutions. The suit mentioned therein is
restricted to recovery of money or for enforcement of any security against
the industrial company or of any guarantee in respect of any loans or
advance granted to the industrial company. As the suit is clearly delineated
in the provision itself, the context would not admit of any other stretching
E process. [823-G]

1.5. Maintainability of a prosecution proceeding is not to be tested
on the touchstone of any practical hurdle in enforcing the sentence which
might be imposed on a company after conviction. Second is, there is no
p insurmountable hurdle for recovery of the fine covered by the sentence
even from a sick industrial compa.ny because the ban contained in Section
22(1) is only conditional as could be discerned from the last limb thereof
which reads thus: 'Except with the consent of the Board or, as the case
may be, the Appellate Authority." It means that with such consent the court
would be In a position to resort to proceedings for distress against the
G properties of the sick industrial company. [822-F-G]

Anil Hada v. India Acrylic Ltd., [2000] 1 SCC 1, relied On.

Maharashtra Tubes Ltd. v. State l11dustrial & Investment Corporation
H of Maharashtra Ltd. & Anr., [1993) 2 SCC 144, distinguished.
B.S.I. v. GII<T HOLDINGS PVT. LTD. ~THOMAS, J.j 817

CRIMINAL APPELLATE JCRISDICTION : Criminal Appeal No. A
8747 of 1999 Etc.

From the Judgment and Order dated 9.6.99 of the Bombay High
Court in Crl.W.P. No. 366. of 1999.

M.S. Ganesh, M.N. Rao, U.N. Bachawat, M.L. Verma, T.L.V. Iyer, B
K.N. Shukla, A.K. Ganguli, D.A. Dave, P. Chidambaram, T.R.
Andhyarujina, Ashok H. Desai, Dushyand A. Dave, Nikhil Nayyar, .\'Irs.
Urmila Si:rur, Thiru Chaugu, G. Sreedhar, Y. Raja Gopala Rao, Ranjit
Kumar, Ms. Anu Mohla, Chander Bhushan Prasad, Ms. Prabha Swami,
Krishnamurthi Swami, R.N. Keshwani, Ms. Rakhi Ray, Ms. Vanita Bhar- C
gava, Tapesh K. Singh, Ms. Bina Gupta, E.R. Kumar, R. Nedumaran, P.
Niroop, B.P. Padhy, Pawan Kumar, G. Prabhakar, Ms. T. Anamika, Mrs.
V.D. Khanna, Paresh C. Markand, Ms. Nirmala Gupta, K. Maruthi Rao,
Ms. K. Radha, D. Mahesh Babu, S.S. Rana, Mrs. Bindra Rana, Vikrant
Rana, P.S. Narasimha, P. Sridhar, K.N. Jha, V.G. Pragasan, Mrs. H. Wahi,
Ms. Anu Sawheny, S.S. Khanduja, Y.P. Dhingra, Baldev Krishan Satija, D
G.B. Sathe, Uma Nath Singh, Mrs. Kamakshi Mehwal, Prakash Jha, Ms.
Vestastina Dias, Pranab Kumar Mullick, Jenis Francis, VJ. Francis, P.I.
Jose, Ms. Asha Jain Madan, Ms. Madhu Dadlani, (K.K. Gupta) (NP), J.S.
Goswami, Ms. Bina Gupta, Prashyant Naik, Ms. Rekha Ray, C.L. Sareen,
Rajiv Dutta, Kapil Sharma, H.P. Sharma, Ms. Enakshi Kulshreshtha, N.S. E
Tambwekar, Nitin Tamswekar, Alok Sen Gupta, Ranjan Narain, Ms.
Det:pa Das, Ms. Lavanya, Ms. Vivek Zutshi, S. Sukumaran, U.U. Lalit, R.
Sasiprabhu, A.P. Vinod. Manoj Pra;.aJ, Mohit Mathur, Ms. Astha Tyagi,
S. Praf>ad, V.A. Ram, Rajcsh Niti1, Kailash Vasdev, R. Rahim, V.B. Joshi,
Ms. Sweta Sharma, Ms. Bharati B., V.G. Praga:-am, Sanjecv ~en, R.N.
Karanjawala, Ms. Nandini Gore, Arunabh Choudhary, Uday Kumar, Ms. F
Manik Karanjawala, Ramesh Singh and Naris Beerani for the appearing
parties.

The Judgment of the Court was delivered by

THOMAS, J. Some companies and their Directors are now frantical- G
ly struggling to get themselves extricated from the catch of prosecution
proceedings pitted against them, consequent to non-payment of amounts
covered by cheques issued by such companies. All the companies involved
in this batch of appeals have a common cause now in that those companies
have, subsequent to the filing of complaints against them, approached the H
818 SUPREME COUKl' REPORTS [2000] l S.C.R.
A Board for Industrial Finance and Reconstruction ('BIFR' for short) and
sought for declaration that those companies became sick as envisaged in
the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA' for
short). They maintained the stand that when proceedings are pending
bdore the BIFR no prosecution can be maintained under law against those
B companies. But the plea so made by such companies was not found favour
with the trial court~, nor with the ~evisiollli.l courts nor even with the High
Courts bdon: which the companies approached. All these appeals have
been filed by special leave against the orders passed by the High Courts
by which the aforesaid plea was discounrenanced.

C It is sufficient to set out the facts from one of the~e appeals in this
batch. Answers given to the questions raised in that appeals would apply
to all the connected appeals now being heard along with that appeal. Facts
in Criminal Appeal No. 847 of 1999 an: the following: Cheques issued by
the appellant thertin were dishonoured by the drawee bank on 27.12.1996
on the ground of msufficicncy of amount in the account concerned, and
D the payee thereof issued a notice on 2.1.1997, demanding paymrnt of the
amount covered by such cheques. As the drawer of the cheques failed to
make the payment as per demand, withm 15 days of receipt of the notice,
a compliant was ftled on 29.2.1997 against the company and its Directors
for the offence under Section 138 of the ~egotiable Instruments Act ('NI
E Act' for short). The magistrate before whom the complaint was filed issued
process against the accused who were arrayed then:in.

Two petitions fur winding up of the company were filed in June 1997,
one at the instance of a creditor of the company and the other hy the
p company itself. Then::after the company moved the BlfR to Jedare it a
sick industrial company. When proceedings were pending before the BlFR
under Section 16 of the SICA declaration was made by the order passed
by the BIFR as per Section 22(3) of SICA. The above is the background
in which the appellants contend that they are not liable tu be prosecuted
in view of the embargo contained in Section 22(1) of SICA.
G
When the offence under Section 138 of the NI Act has been com-
mitted by a company "every person who, at the time the offence was
committed, was in charge of, and was responsible to the company for the
conduct of the business of the company, as well as the company, shall be ~
H deemed to be guilty of the offence and shall be !iable to be proceeded
13.S.l. v. GIJ:<T HOI .DINGS PVT. LTD. [THOMAS, J. J 819

against and punished accordingly,'" (vide Section 141 of the NI Act). A

In Anil Hada v. l11dia11 Acrylic Ltd., [2000) 1 SCC 1 it has been
pointed out that three categories of persons can be discerned as brought
within the purview of the penal liability, through the legal fiction envisaged
in Section 141 of the NI Act. They are : (1) The company which committed
the offence. (2) Every person who was in charge of and responsible to the B
company for the conduct of the busine>S of the company. (3) Any other
pt:rson who is a director or a manager or a secretary or an officer of the
company with whose connivance or with whose neglect the company has
committed the offence.

Learned counsel for the appellant submitted that when reconstruc-
c
tion efforts of a sick industrial company are pending under the provisions
of SICA all other legal proceedings including any prosecution proceedings
would stand suspended by the operation of the t:mbargo contained in
section 22(1) of SICA. In order to persuade the court to place such an
interpretation on the said sub-section learned counsel invited our attention D
to certain other provisions of SICA also.

ln the Statement of Object and Reasons for introducing the Bill in
the Parliament which later became Act No. 1 of 1986, it is stated, inter alia,
that the ill effects of sickness in industrial companies such as Joss of E
production, loss of employment, loss of revenue to the Governments and
locking up of investible funds of banks and financial institutions are of
serious concern to the Government and the society at large. "A need has,
therefore, been fdt to enact io public interL.st a legll,lation to provide for
timely detection of 1.ickness in industrial companies and for expeditious
determination by a body of experts of the preventive, ameliorative, F
remedial and other measures that would need to be adopted with respect
to such companies and for enforcement and for enforcement of the
measures considered appropriate with utmost practicable dispatch.' A sick
industrial company is a company which has "at the end of any financial year
accumulated losses equal to or exceeding its entire net worth.'' (vide Section G
3(1) of SICA).

Section 15 enables the Board of Directors of a company which has
become sick to make reference to the BIFR for determination of measures
which shall be adopted with respect to the company. (The Central Govern-
ment or the Reserve Bank or the State Government concerned may also H
820 SUPREME CO CRT Rf<PORTS [20UOJ l S.CR.

A make the rderem:e to the BIFR for the same purpu-;e if it has sutficient
reasons to believ.: that a company has bt:come sick.) Once a refcn:nce is
made it is open to BIFR to conduct an inquiry for determining whether
---
the company has become sick. If the BI FR is satisfied, on completion of
the inquiry, that the company has become sick it can adopt any of the
B measun.:s envisaged in Section 17 of ~1 (A When an order is made under
Section 17 a scheme with respect to the company shall be prepared by ''the
operating agency' specified in such order, The above is the general scheme
of SICA.

It is in the above background th<1t Section 22 of SICA has to be
C looked at. Sub-section (1) of Section 22 is extracted below :

"Where in respect of an industrial company, an inquiry under
section 16 is pending c r any scheme referred to under section 17
is under preparation or consid;;ration or a sanctioned scheme is
under implementation or where an appeal under Section 25 relat
D
ing to an industrial company is pending, then, notwithstanding
anything contained in 1he Companies Act, 1956, or any other law
or the memorandum and articles of association of the industrial
company or any other instrument having effect under the said Act
or other law, no proceedings for the winding up of the industrial
E company or for execution, distress or the like against any of the
propertit:s of the industrial company or for the appointm..:nt of a
receiver in respect thereof and no wit for th.: n:cowrv of money
or for the enforcem.;nt of any security again>t the industrial com-
pany or of any guarant.:e in respect of <tny l•1an' or adv'111L<: granted
to the industrial company ,hall lie or bt:: proceeded with furthe;r.
F
except with the consent of tht Board or, as the case may be, the
Appellate Authority."

Sub-section (2) is not of any rekvance so far as the points raised in
this batch of appeals are concerned. Sub-section (3) confers power on the
G BIFR to declare that the operation of all or any of the contracts, assurances
of property, agreements, settlements, awards, standing orders or other
instruments in force shall be su5pendcd and that all or any of the rights,
privileges, obligations and liabilities accruing or arising thereunder before
the said date shall remain suspended. Sub-section (4) says that when any
H such declaration is made under sub-section (3) it shall have overriding
8.S.L v. GltT HOLD I"< GS PVT LTD. [THOMAS, J j 821

effect and ''any remedy for the enforcement of any right, privilege, obliga- A
tion and liability suspended or modified by such declaration, and all
proceedings relating thereto pending before any courL.rn ........ shall remain
stayed.·

As the arguments based on Section 22(1) of SICA were endeavoured
to be fortified with the help of Section 22-A of SICA the said provisions B
is txtracti::d below :

"22. A Direction not to dispose of assets. - The Board may, if it is
of opinion that any direction is necessary in the interest of the sick
industrial company or creditors or shareholders or in the public C
interest, by order in writing, direct the sick industrial company not
to dispose of, except with the consent of the Board, any of its
assets ·

(a) during the period of preparation or consideration of the
schcme under section 18; and D

(b) during the period beginning with the recording of opinion by
the Board for winding up of the company under sub-slOction
( l) of section 20 and up to commencement of the proceedings
relating to the winding up before the concerned High Court."
E
We do not think it necessary to labour on th<:: scope of section 22 A
of SICA in the present batch of appeab as the BIFR did not pass any order
against any company involved hen;in until the expiry of the period of 15
days from the receipt of notice contemplated in clause ( c) of the proviso
to Section 138 of the NI Act. So none of the companies was interdicted by F
any such order envisaged in Section 22-A during the above period of 15
days. Hence, we are unable to find any help from the said provision which
could salvage the appellants from the prosecution proceedings against
them.

Switching back to sub-section (1) of Section 22 of SICA, we may G
point out that its operation commence in respect of the companies involved
in this batch of appeals only after the expiry of the period of 15 days
envisaged in clause (c) of the proviso to Section 138 of the NI Act within
which the companies did not pay the amount covered by the cheqUt:s. The
ban imposed, as per Section 22( 1) of the SI CA, is against maintainability H
822 "ilJPREMh ( :m rKI JU.PORTS [2000] 1 S.C.R.
A of the following legal action :
( 1) Proceedings for tht: winding up of the company;

(2) Procc:edings for execu:ion, distress or the likes against any of
the prupertics of the company;
B
(3) Proceedings for the appointm..:nt of a receiver in respect of
such properties;

(4) Suit for recovery of money or for enforcement of any security
ag<1inst tht. company or guar dntec; in respect of any loan or
c advance; granted to the company.

Some of tht: learned counsd pointt:cd out that when a company is
convicted undi.:r Section 138 of the NI Act the court can only impose a fine
as the sentence since a juristic person like the company cannot possibly be
sent to prison. On its premise learned counsel contended that recovery of
D the fine coven:d by such sentence would be impractical on account of the
ban envisaged in S..:ction 22(1) of SICA against proceedings for execution,
distress or the likts as against any of the propt:rties of tht: company. As a
corollary, it was submitted that prosecuti0n against the company cannot be
maintained since a court would not be abk to t:ffectivdy impose a sentence
E on a company after convicting it of the offence under Section 138 of NI
Act.

The fallacy of the above contention is two-fold. First is that main-
tainah[lity of a prLJsecutinn proc..:eding is not to bt: leskd on l hi.: tom:hstone
of any practical hurdle in enfordng the :,entem:t: which m:.ghl b.: imposed
F on a company afti.:r conviction. St:cond is, tht:re is no insurmountable
hurdle for rccowry of the fine covt:red by the sentence even from a sick
industrial company because the ban contained in Section 22(1) is only
conditional a' could be discerned from the last limb thereof which rt:ads
thus : "Except with the consent of the Board or, as the case be, the
G Appellate Authority.'' It means that with such consent tht: court would be
in a position to resort to proceedings for distress against the properties of
the sick industrial company. Hence the aforesaid contention has no merit
at all.

It was next contt:nded that the ban against maintainability of a suit
H for the rt:covery of money would encompass prosecution proceedings also.
B.S.l v. GlFI HOLDINGS PVT.LTD. :THOMAS, J.j 823

To support the said contention reliance was sought to be made on the A
following meaning of the word "suit" as given in Bouvier's Law Diction-
ary:

''Suit is a generic term of comprehensive signification, and applies
to any proceeding in a court of justice in which the plaintiff
pursues, m such court, the n:medy which the law affords him for B
the redress of any injury or the recovery of a right... ....... In its most
extended sense, the word suit includes not only a civil action, but
also a criminal prosecution, as, indictment, information and a
conviction by a magistrak".
c
Learned counsel invited our attention to the maxim "contemporanea
expositio est optima et fonissama in lege" (contemporaneous exposition is
the best and strongest in law) for the purpose of stretching the scope of
the word "suit" to envelope criminal prosecution as well.

Our atti::ntion has also been invited to the observation of a two Judge D
Bench of this Court in Maharashtra Tubes Ltd. v. State Industrial & Invest-
ment Corporation of Maharashtra Ltd. and Anr., (1993] 2 SCC 144. While
considering the purpose and objects of suspension of proceedings men-
tioned in St:ction 22(1) of SICA, therein it has been held that the expres-
sion "proceedings" in the sub-section must be widely construed. This is what E
the Bench has observed :

'The legislature has advisedly used an omnibus expression 'the like'
as it could not have perct:ived of all possible crn:rciw measures
that may be taken against a sick undertaking.''
F
The said contention is also devoid of merits. The word "suit" en-
visaged in Section 22( 1) cannot be stretched to criminal prosecutions. The
suit mentioned therein is restricted to "rtcovery of money or for enforce-
ment of any security against the industrial company or of any guaranke in
respect of any loans or· advance granted to the industrial company. As the
suit is clearly delineated in the provision itself, the context would not admit G
of any other stretching process.

A criminal prosecution is neither for recovery of money nor for
enforcement of any si::curity etc. Section 138 of the NI Act is a penal
provision the commission of which offence entails a conviction and sen- H
824 SUPREME COURT KEPOR rs [2G00] 1 S.C.R.
A tence on proof of the quilt in a duly conducted criminal proceedings. Once
the offence under Section 138 is compltted the prosecution proceedings
can be initiated not for recovery of the amount covered by the cheque but
for bringing the offender to the penal !iability. What was considered in
Maharashtra Tubes ltd. (supra) is whether the remedy provided in Section
B 29 or 31 of the State Finance Corporation Act, 1951 could be pursued
notwithstanding the ban contained in Section 22 of the SICA. Hence the
legal principle adumbrated in the said decision is of no avail to the
appellants.

ln the above context it is pertinent to point out that Section 138 of
C NI Act was introduced in 1988 when SICA was already in vogue. Even
when the amplitude of the word ;'company" mentiom;d in Section 141 of
the NI Act was widened through the Explanation added to the section,
Parliament did nut think it necessary to exclude companies falling under
Section 22 of SICA from the operation thereof. If Parliament intended to
exempt sick companies from prosecution proceeding, necessary provision
D would have bt:en included in Section 141 of the NI Act. More significantly,
when Section 22(1) of SICA was amended in 1994 by inserting the words
("and no suit for the recowry of money or for enforcement of any security
against industrial company or of any guarantee in respect of any loans or
advance granted to industrial company") Parliament did not specifically
E included prosecution procet:ding within the ambit of tht: said ban.

The conclusion which we have to draw is that if commission of the
offence under Section 138 of the Nl Ad was completed before the com-
mencement of prnceedings under Slcti,1n 22(1) of SICA there j, 110 hurdle
in any tlf the provisi.ons of SICA agamst the maintainability ,;nd pro"::cutio•'
F of a criminal complaint duly institutc:d under Section l. U of the NI Act.
The decisions rendered by the High C1urt, which are assailed before us in
this batch of appeals, are therefore not liable to be interfered with. Appeals
are accordingly dismissed< Special Ll;ave Petitions heard along with the
above appeals are also hence dismissed.
G R.A. Appeals/Pt:titions dismissed.