Supreme Court of India

SHUBH SHANTI SERVICES LTD.versusMANJULA S. AGARWALLA AND ORS

Citation: 2005 INSC 275
Decided: 11 May 2005
Disposal: Case Partly allowed
Bench: P VENKATARAMA REDDI

Holding

Section 630 provides a quasi‑criminal, summary remedy for the company to retrieve its property and is not barred by a civil injunction; the chairman lacked authority to bind the company, making the respondents' possession wrongful and subject to penalty.

Summary

The managing director of Shubh Shanti Services Ltd. was allotted a company flat during his employment; after his death his widow and daughter continued to occupy it. The company served notice to vacate, but the respondents claimed they were allowed to stay until another flat was provided, based on an oral assurance from the chairman. The company filed a criminal complaint under Section 630 of the Companies Act, 1956 for wrongful withholding of its property, while the respondents pursued a civil suit for specific performance of a separate flat purchase. The High Court held that the assurance was not authorized by the board and that the respondents’ possession after notice was wrongful, imposing a fine under Section 630, but also upheld an interim injunction preventing forcible dispossession. The Supreme Court clarified that proceedings under Section 630 are not barred by the injunction and constitute a summary remedy distinct from civil proceedings, allowing the company to seek possession through the Act. Consequently, the Supreme Court set aside the lower courts' orders and partly allowed the appeal, affirming the fine and directing the parties to bear their own costs.

Issues considered

The scope and nature of Section 630 of the Companies Act, 1956 – whether it is penal in nature and whether proceedings under it constitute 'due process of law'.
Whether the chairman of the board had authority to bind the company by assuring the respondents could remain in possession of the flat.
Whether the respondents' continued occupation after notice amounted to wrongful withholding of company property attracting liability under Section 630.
Whether the interim civil injunction barred the company from pursuing criminal proceedings under Section 630.

Legislation cited

Companies Act, 1956s. 291, s. 630
Indian Penal Code, 1860s. 109

Subjects

Section 630Companies Actwrongful withholding of propertydue process of lawboard of directors authoritypossessioncivil vs criminal remedyinterim injunction

Judgment

A SHUBH SHANTI SERVICES LTD.
v.
MANJULA S. AGARWALLA AND ORS

MAY II, 2005

B [P. VENKATARAMA REDDI AND P.P. NAOLEKAR; JJ.]
I

·companies Act, 1956:

Section 630-Scope and object of-Discussed
c
Section 630-Withholding of company's property by legal heirs of
employee ofcompany after his death-Action under section 630 by Company-
Jnterim order in·civil proceedings that heirs:not to be dispossessed except by
due process of law and proceedings under sectio_n 630 being penal in nature
D not under due process of law-Sustainability of-Held: Remedy is available
to the Company to obtain possession ofproperty under section 630-There is
no necessity to approach civil court-Hence, order unsustainable.

Sections 630 and 291-Withholding of company's property by legal
heirs of employee of company after his death, despite notices-Plea that on
E basis of oral assurance by Chairman of Board of Directors heirs continuing
in possession offlat until possession of another flat given-Held: No evidence
that Chairman was authorized by Board of Directors to give such assurance
for and on behalf of the CompanrFurther, act of Chairman not incidental
to business of the Company nor a necessity-Assurance given was more of a
gratuitous act-~Hence, not binding and enforceable .against Company-After
F service of notice, heirs wrongfully withheld property-Offence .under section
630(1) attracted-Order of High Court in civil suit appointing Court Receiver,
delivering him symbolic possession ofproperty, and actual possession to heirs
as agent of Receiver does not wipe out offence already committed-Fine of
Rs/000-each imposed-Till order stands, no direction under section 630(2)
G for obtaining possession to be given
Board of Direct"rs/Chairman-Power, scope of-Discussed

Jurisprudence- 'Due process of law'-Meaning of-Discussed-,-Words
and Phrases.
H 264
SHUBH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA 265

'A' managing director of the appellant company, was allotted A
property of the company-flat 'S' for residential purpose for himself and
his family members while he was in service. After' A's death, his wife and
daughter, respondent nos. 1 and 2 continued to occupy the flat and notice
to vacate the premises was served. Respondent no 1 informed the
appellant-company by letter that on ba~is of assurance she continued in
flat 'S' till possession of flat 'BH' was delivered to her regarding which B
her husband and the appellant-company had entered into sale agreement.
Respondents filed suit for specific performance of contract for sale,
transfer and handover of poss.ession of flat 'BH' against appellant-
company and that they not be disposed of flat 'S' until flat 'BH' is handed
over to them. Appellant-company filed complaint under section 630 of the C
Companies Act, 1956 against respondents for wrongfully withholding the
property of the Company. High Court passed interim order preventing
respondents from being dispossessed from the premises except by due
process of law and that proceeding under section 630 being penal in nature,
cannot said to be proceedings under due process of law. Appellant-
company also filed suit for possession of flat 'S':I-iigh court by interim D
order appointed Court Receiver and gave him symbolic possession of flat
'S' and the respondents were given actual possession of flat as agents of
Receiver, during pendency of suit. Thereafter, magistrate dismissed the
complaint. Appellant-company filed an appeal which was also dismissed
Hence the present appeal. E
Partly allowing the appeal, the Court

HELD: 1.1. Section 630 of the Companies Act, 1956 does not only
cover cases of the present employee or officer of the company and this
provision strictly speaking is not penal in the sense as understood under F
penal law. The main purpose to make action an offence under section 630
is to provide a speedy and summary procedure for retrieving the property
of the company, where it ~as been wrongly obtained by the employee or
officer of the company or where the property has been lawfully obtained
.but unlawfully retained after termination of the employment of the
employee or the officer and to impose a fine on the officer or employee of G
the company if found in breach of the provision 'or Section 630 of the
Companies Act and further to issue direction if the Court feels it just and
appropriate for delivery of the possession of the property of the company
~nd to impose a sentence of imprisonment when there is non-compliance
of the order of the Court regarding delivery or refund of the property of H
.....

266 SUPREME COURT REPORTS (2005] SUPP. 1 S.C.R.

A the company. [276-A, B, C)
1.2 Due process of law in the present context would ordinarily mean
such an exercise of power by the parties as the settled principles of law
permit and/or a cou.rse of legal proceedings, according to those ·rules and
principles which have been established in our systems of jurisprudence
B for the enforcement and protection of private rights. In the instant case,
when the High Court passed an order of injunction, it meant that the
Company shall not take forcible possession of Oat •s• during the pendency
of the suit and Company was given liberty to take st~ps for possession as
permissible under law. The Company can prove unfawful possession of
C the property by the employee or his or her legal rep_resentative after the
demise of the employee or an officer of the company. The Company has
the remedy to initiate action under Section 630(1) and on conviction by
the Competent Criminal Court it can approa~h· the same Court for
directing delivery of possession which Section 630(2) of the Act provides.
It cannot be said that the Company has to n_ecessarily approach the civil /
D court only for obtaining possession of the Oat 'S' and that the remedy ·
available under the Companies Act cannot be resorted. The decision of
the High Court that Section 630 of the Act· being penal in nature, ,the
proceeding thereunder cannot be construed to be a proceeding taken in
due process of law, cannot be sustained. Filing of civil suit for possession
E by the Company does not deprive the Company of the right to institute
prosecution under the Companies Act and incidentally get an order for
delivery of possession.

Baldev Krishna Sahi v. Shipping Corporation of India Ltd., [19871 4
SCC 361; Amrit Lal Chum v. Devoprasad Dutta Roy, (1988) 2 SCC 269; Atu/
F Mathur v. Atul Kalra, (1989) 4 SCC 514; Abhilash. Vinodkumar Jain (Smt.)
v. Cox and Kings, {India) Ltd and Ors., (1995) 3 SCC 732 and Lolita Jalan
and Anr v. Bombay Gas C:o. Ltd. and Ors., (2003) 6 S.C.C. 107, relied on.

2.1. In the matter of company affairs, Directors act as a body and
collectively as a Board. Any Director acting individually has no power to
G act on behalf ofthe company in respect of any matter except to the extent
to which any power or powers of the Board have been delegated to him
by the Board within the limit permitted by the Companies Act or any other
law. The position of the Chairman of the Board of Directors is not
substantially different from an individual Director. Under the Companies
H Act, Chairman of the company does not have any special or extraordinary -
SHUBH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA 267

rights to be exercised by him without being authorized by the Board of A
Directors. The Board of Directors have an authority to delegate the power
or authority to act for and on behalf of the company to the Chairman of
the Board of Directors. Section 291 of the Companies Act authorizes the
Board of Directors of the Company to exercise such powers or of such
acts or things as the company is authorized to exercise and do such acts B
or things, except in the matter where the power is to be exercised by the
company in general meeting. Besides, the Board of Directors itself could
exercise the powers in accordance with the memorandum of association
or the articles of the company. Any power exercised beyond the
memorandum or the articles of the company would not bind the company.
Any assurance given by the Board of Directors either should be the C
authorised object of the company by the memorandum of association or
articles of the company or its purpose should be reasonably ancillary or
incidental to carrying on the company's business.

2.2. Respondents were holding possession of the company's flat S on /
the oral assurance given by Chairman of the Board of Directors that they D
· · ·. could continue to reside in the said flat until the possession of the flat BH
was given to them. It was for the respondents to show the authority of
the Chairman to bind the company on the basis of the oral assurance given
· to them by him to retain the possession of the flat. There is no evidence
nor any finding that the Board of Directors authorized the Chairman to E
give sue~ an assurance for and on behalf of the company. In the absence
of any authority to the Chairman by the Board of Directors to act for and
on behalf of the company, the assurance' given by him to the respondents
would not bind the company, nor it will create a binding agreement
between the respondents and the company to permit the respondents to
remain in possession of flat 'S' even after the death of 'A'. Further, the F
evidence points out that the only consideration operating in the mind of
Chairman was to console the widow and to permit her to live in the flat
for. some ti~e. The assurance given to the respondents by the Chairman
has more of a gratuitous and compassionate flavour and less to· do with
the interest of the company in mind. Moreover, it is difficult to G
comprehend how the chairman could promise on behalf of the Company
when he himself was not sure of the time the Company would get the
possession of the flat 'BH'. That apart, the act of the Chairman cannot
be construed to be one done incidental to the business of the.Company or
as a matter of necessity.
H
268 SUPREME COURT REPORTS [2005} SUPP. I S.C.R.

A 2.3. The Company did not authorize the respondents to remain in
possession of flat 'S' after notice to vacate the premises was given. The
possession of flat, after the service of notice was wrongful withholding of
the property of the company and, as such the respondents have committed
an offence. The interim order of High Court appointing the Court
B Receiver, delivering him symbolic possession, and ·actual .possession as
agent of receiver to respondent No.I, does not wipe out the offence
committed for which complaint was filed. Subsequent to that order,
possession may not be wr_ongful, but on the date of complaint and till the
date of that order the respondents did wrongfully withhold that property,
attracting the offence under Section 630(1). Thus, fine of Rs 1000/- each
C is imposed on respondents. So long as the aforesaid interim order of High
Court stands, direction under Section 630(2) for delivery of actual
possession of flat 'S' to the Company can not be passed.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 712
of 2005.
D
From the Judgment and Order date~ 8.4.2004 of the Bombay High
Court in Crl. A. No. 48 of 2000 .

. Arun Jaitely, J.A. Rana, Levi Ruben and Madhup Singhal with him for
the Appellant.
E
Haresh M. Jagtiani, Bhargava V. Desai, Curush Bilimoria, Sanjeev
Kumar Singh and Pradeep Kumar Malik with him for the Respondents.

The Judgment of the Court was delivered by

F P.P. NAOLEKAR J. Leave granted.

This appeal is directed against the judgment and order dated 8.4. 2004
passed by the High Court of Bombay in Crl. Appeal No. 48 of2000 acquitting
the respondents Mrs. Manjula S. Agarwalla, Respondent No. l and Ms. Anisha
S. Agarwalla, Respondent No.2 of the offence punishable under Section 630
G of the Companies ~ct, 1956.

The complainants, viz., Herdillia Chemicals Ltd., non-chemical business
was de-merged and vested in Shubh Shanti Company Ltd., py a Scheme of
arrangement, approved by the Bombay High Court. Hence,, Mis. Shubh Shanti
Services Limited came to be substituted in place of Mis. Herdillia Chemicals
H
SHUBH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA [NAOLEKAR, J] 269

Ltd. as appellants during the pendency of the appeal before High Court. A
Brief facts of the case are that the complaint was filed by the Company
on 13.1.95 on the allegation that one Shri Suresh Chander Agawalla, husband
of Respondent No. I and father of respondent No.2 was employed with the
appellant Co. since 1971 till his death on 2nd of November 1992. He was
appointed Managing Director of the appellant Co. for a period of five years B
with effect from 15th of June J.988. Flat No.25 in a building called "Sonmarg"
at 78, Jagmohandas Marg, Mumbai, owned and possessed by the appellant-
company was allotted to late Shri S.C. Agarwalla on I 0th· Of March 1975 to
be used for residential purpose for himself and members of his family during
the period he was in service of the appellant. Board of Directors had extended C
the term of Shri S.C. Agarwalla as Managing Director of the Company upto
14th of June 1993. However, unfortunately, on 2nd of November 1992, Shri
S.C. Agarwalla died when he was whole time Managing Director of the
appellant-company. Respondents l and 2 were residing with him in Sonmarg · .-
flat being members of his family. Even after the death of Shri Agarwalla,
they continued to occupy the said flat. It was alleged in the complaint that D
after the death of Shri Agarwalla, respondents were bound to vacate and
handover the vacant possession of the said flat to the appellant-company but
because of the critical health conditions of Respondent No. l, the appellant,
on humanitarian grounds, did not take any step to get the flat vacated for
some time . The appellant-company by its letter dated 28th of December E
1993 demanded possession of the flat within 45 .days of the receipt of the
letter from the respondents. In response, Respondent No. l by her letter dated
7th February 1994, addressed to the Sec-retary & Financial Controller of the
appellant-company informed the appellant-company that she was staying in
the flat because the Chairman had asked her to do so till the flat in another
building was made available to her. F
The respondent by a subsequent communication addressed to the
Chairman, referred to the assurance given to her that she would not be called
upon to vacate the Sonmarg flat till the sale of Blue Heaven flat is executed
as per separate agreement dated I 0th of February 1978, entered into between
Shri S.C. Agarwalla and the Company for purchase of Blue Heaven flat and G
informed that her late husband had the right to purchase the Blue Heaven flat
and that the assurance given by the Chairman should be adhered to, by the
appellant, to permit her to remain in possession of the Sonmarg flat till the
sale deed is executed in respect of Blue Heaven flat.

H
270 SUPREME COURT REPORTS [2005) SUPP. I S.C.R.

A The appellant Co., thereafter, again by a registered letter dated 9th of
. Noyemberl 994, addressed to both the respondents, called upon them to vacate
the flat and handover the possession. By this communication, the appellant
also specifically conveycd·to the first respondent about its decision that Blue
Heaven flat cannot be sold and transferred. As the respondents did not comply
B with the request made by the appellant, a complaint was filed in the Court
of Addi. Chief Metropolitan Magistrate, 40th Court. at Girgaum, Bombay
under Section 630 of the Companies Act, 1956 alleging that respQndents
being the legal heirs oflate Shri S.C. Agarwalla who was allotted the property
of the company for residential purpose for himself and members of his family
whilst he was in service of the said company, have wrongfully withheld and
c continued to withhold wrongfully by refusing to vacate and handover
possession thereof. Thus, they have committed an offence, punishable under
Section 630 of the Companies Act read with Section 109 of the Indian Penal
Code.

From the case set up by the respondent and th~ evidence led, the case
D of the respondents is that there were discussions between them and the
Chairman of the Board of Directors of the appellant and the Chairman, Board
of Directors has assured them to continue to stay in Sonmarg flat until st.1ch
time as the contract in respect of sale of Blue Heaven flat was implemented
and therefore the possession of the respondent of Sonmarg flat is not
E unauthorized or wrongful.

Before. complaint was filed, a Civil Suit No.7 of 1995 was filed by
Respondents 1 and 2 against appellant company on 23.12.1994 in the High
Court for specific performance of the contract dated 10th of February 1978
for.sale, transfer and to hand over possession of Flat No.33, 3rd Floor, Blue
F Heaven Cooperative Housing Society Ltd., Moun~ Pleasant Road, Bombay.
In the suit further relief claimed is that the (jefendants be ordered and decreed
not to dispossess or interfere with the· occupation and residence of the 1st
plaintiff and her family in Sonmarg flat, Napean Sea Road, Bombay until
such time as the Defendant company transfer and handover vacant possession
of aforesaid Blue Heaven flat. In the said civil suit the High Court on 10th
G of January 1995 passed an interim order "counsel for th~ defendant has made
a statement that the· plaintiff shall not be dispossessed from the premises in
question except by due ~process of law. The statement is accepted''.

Subsequent to the complaint filed under Section 630, appellant company
H has also filed a suit in the High Court (Suit No. 2391 of 1997) for possession
SHUBH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA [NAOLEKAR, J.) 27 J

of Sonmarg flat and other reliefs against the respondents. The High Court by A
its order on 16th of November 1998 passed an order for appointment of the
Court Receiver for Flat No.67-B, 25 Sonmarg, Nepean Sea Road, Mumbai
and Receiver was placed in possession of the flat. It was agreed between the
parties that Respondent No. I was in possession of the flat. The High Court
directed that the Court Receiver shall take symbolic possession of the flat B
from Respondent No. I. The Court Receiver shall appoint Respondent No. I
as his agent to be in actual possession of the flat during the pendency of the
suit. The Court Receiver shall fix the amount of royalty payable by Respondent
No. I for occupation of the flat. While fixing the royalty, the Court Receiver
shall take into consideration of the contentions_urged by both the parties.
Pending fixation of the amount of royalty by the Court Receiver, an ad hoc C
amount of royalty is fixed at Rs.25,000 per month. The respondent shall
deposit the arrears of royalty at the ad hoc rate from June I 997 to November
,;.
1998. By this order the possession of the Respondent No. I was recognized
l of the Sonmarg flat and the Court Receiver was given symbolic possession
• of the flat and possession of the Respondent No. I was to be treated as the
agent of the Receiver to remain in actual possession of the flat during the D
pertdency of the suit.

After issuance of summons both parties led evidence. The Magistrate
dismissed the complaint holding that the respondents are in possession of
Sonmarg flat as they have not been handed over possession of the Blue E
Heaven flat for which they were required to file a suit for specific performance.
The respondents are under bonafide impression that they have right to continue
in the said flat In Sonmarg till they get possession of the flat in Blue Heaven
as per assurance given by Chairman of the Company and thus it cannot be
said that they have wrongfully withheld the property of the company. It was
further held that the matter is pending consideration before the civil court F
and, therefore, the Court cannot pass order of restoration of possession to the
appellant Co. till rights of the parties are ascertained. ..,.

The appellant-company preferred an appeal before the High Court. The
High Court dismissed the appeal holding that the respondents have made out G
a bona fide, probable and plausible defence that they were allowed to occupy
the flat at Sonmarg by the Chairman of the Board of Directors till the flat in
Blue Heaven is made available to them. Respondents shall ultimately succeed
in the suit for specific performance or not is another matter. The resp.ondents
have made out a case that an assurance was so given and thus the appellant
has failed to prove that the respondents are in wrongful possession of the flat H

~.
I·
.\
1·
. -- -
272 SUPl,l.EME COURT REPORTS (2005) SUPP. I S.C.R.

A in Sonm'arg. Apa t from th;s, the High Court has further held that a suit for
recovery of the possession of the flat in Sonmarg filed by the appellant-
company, a Court Receiver has been appointed and the respondent has been -
appointed as an agent of the Court Receiver and therefore also it cannot be
held that the respondents are in wrongful possession of the premises nor can
B it be said that the respondent have no right to continue in occupation of the
flat in Sonmarg. The High Court has said that in a suit for"specific performance
of the agreement filed by the r~spondents, the High Court has granted an
injunction prevented the respondents from being dispossessed except by due
process of la\V and Section 630 proceedings ~eing, penal in nature, cannot bt:
said to be the "due process of law". Any order in the proceedings initiated
C by the appellant-company for recovery of possession of the Sonmarg flat
from the respondents would be in breach of express injunction order. issued
by the Court. The High Court has dismissed the appeal filed by the appellant
company. Consequently complaint filed by the appellant stands dismissed.

Learned counsel for .the appellant-company has urged that the High
D Court has not properly understood the scope and ambit of Section 630 of the
Companies Act and thereby com;.;,itted an error in holding that the proceedings
under s£ction 630 of the Companies Act could not be encompassed within ·
· its fold "due process of law" not being civil proceedings. The provision being
penal in nature cannot be taken recourse to for possession of the flat when
E the matter relating to ·flats in question are pending in the Court.·
Before we embark. upon the discussion, we may firsi notice the scope
of Iangu_age of Se~tion 630 of the Companies -Act. · -

.The s_aid Section reads as u~der:
F · "S.630:- Penalty for wrongful withholding of property

(I) If any officer or employee of the Company-.
~ - .
(a) wrongfully obtains possession of any property of a company; or

G (b) having any" such property in his possession, wrongfully withholds
it or knowingly applies it to purposes other than those expressed or
directed in the articles and authorized by this Act; .

he shall,. on the complaint of the company or any creditor or
cont:lbutory thereof, be punishable with fine which may extend to
H ten thousarid rupees;
SHUBH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA [NAOLEKAR,J.] . 273-.

(2) The Court trying the offence may_also order such officer or A
employee to deliver up or refund, · within_ ~ t~e- to -~ _fixed ·by the . ·
Court, any such property wrongfully obtained or wrongfully withheld
or knowingly misapplied, or in default, to suffer imprisonme~t for a
tenn which may extent to two years" · · · -
. ·. . "
From the.bare reading of the Section, it is apparent that Sub-S.(l) is' iri two .' ~ "'."
parts. Sub-s.(i) of clauses (a) and (b) creates two different and separate ''
offences. Clause (a) contemplates a situation wherein an officer or employee ·
of the company .wrongf'ully obtains possession of any property of the company .
during the course of his empforment to' which he i~ not entitled whereas
cl~use_ {b) c~nteinplate_s a case.~here a~ officer. or e~ploy'ee ~fthe.'c~m~any __·. c '
having any property of the company in his possession, wrongfully withholdS ·
. it or knowingly appli~s it to purp0ses other than"th~se ~xpressed or.di-~ected
in the Articles and a~thorized by the Company. U-nder·this provision, it ~ay .
be that an officer or an employee may have lawfully obtaine_d possession of
any property during the course of his empl~yment, still it is an.offence .if he
wrongfully withholds it after the termination of his employment. Clause (b) . D '
als~ makes it an offence, if any officer ·or employee.of the Compa~y .having
any p/openy of the company in his possession knowingly applies it to purposes
other than those expressed or directed in the articles and authorized by the
Act. This Section does not make a·ny difference between the movable and
immovable property. The property in Se~tion 630 includes both movable and E
immovable property. Sub-s.{2) of Section 630 authorizes the Court trying the
offence, in its discretion to order any such officer or empl?yee of the company
which includes paSt or present, or his or her legal representative, to deliver,
within a specified time, possession of such property which has been wrongfully
obtained or wrongfully withheld or knowingly misapplied. In default; the
Court may impo.se a punishment of imprisonment" for a term which may· F.-
i:xte~d to two years. 1 ••

. In the matter of BaldeV Krishna Sahi v. Shipping Corporation ofIndia
Lid, [ 1987) 4 SCC 361 this Court resolved the conflict arid has held that the ·
expression 'officer' or 'employed" of the company ·applies not .only to the · G
existing officer or-employee but also includes past officer or employee where · '
such officer or employee either wrongfully obtained o.r wrongfully w·ithheld :
· or knowingly misapplied any property after the termination of his employment.
This·decision ~vas· approved by a Three Judg~ Bench of this "court in ·Amrit
Lal Ch11n1 ~- D~oprasad Dutta Roy, [1988] 2 sec 269 where it is held that
Section 630 of the· Act make~ it·. ari offence if an officer or employee of the - H .
' • ' ' • ' I • -. I : : .. ' • ' • ~• ; ' ;. .• • '

-·
274 SUPREME COURT REPORTS [2005] SUPP. I S.C.R.

A company who was permitted to use the property of the company during his
employment wrongfully retains or occupies the same after the termination of
his employment and that there is no warrant to give a restrictive meaning to
the term "officer or employee" appearing in sub-s.(1) of Section 630 of the
Act as meaning only an existing officer or an existing employee and not
those whose employment had been terminated or had otherwise come to an
B end.

While interpreting and laying down the object of the provision of Section
630 of the Companies Act, this Court in the matter of Atul Mathur v. Atul
Ka/ra, [1989] 4 SCC 514 has emphasized that the object of the provision of
C Section 630 of the Act is to retrieve the property of the company and that
even though the provisions are penal in nature, the object of the provision is
required to be given a purposive interpretation so as not to choke the beneficent
provision.

In the matter of Abhilash Vinodkumar Jain (Smt.) v. Cox & Kings
D (India) Ltd and Ors., [ 1995] 3 SCC 732, a Division Bench of this Court
explained the object of Section 630 of the Companies Act and said: (Para 15
at Page 740)

"Even though Section 630 of the Act falls in Part XIII of the
Companies Act and provides for penal consequences for wrongful
E withholding of the property of the company, the provisions strictly
speaking are not penal in the sense as understood under the penal
law. The provisions are quasi-criminal. They have been enacted with
the main object of providing speedy relief to a company when its
property is wrongfully obtained or wrongfully withheld by an
F employee or officer or an ex-employee or ex-officer or anyone
claiming under them."

The Court has explained and interpreted the term 'officer' or 'employee'
of the Company in Section 630 of the Companies Act and said that it would
include the legal heirs and representatives of the employee or the _officer
G concerned, continuing in occupation of the property of the company after the
death of the employee or the officer.

A Three Judge Bench of this Court in Lalita Jalan and Anr. v. Bombay
Gas Co. Ltd and Ors., [2003] 6 .sec 107 has drawn a distinction between
the provisions of the Statute which are purely of a penal nature and the
H Companies Act, particularly provisions of Section 628 to Section 631 of the
SHUSH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA [NAOLEKAR, J.] 275
Companies Act and held: (Paragraphs 17 and 19) A
"The purpose of criminal justice is to award punishment. It is a method
of protecting society by reducing the occurrence of criminal behaviour.
It also acts as a deterrent. Where the punishment is disabling or
preventive, its aim is to prevent a repetition of the offence by rendering
the offender incapable of its commission. The Companies Act is B
entirely different from those statutes which basically deal with offences
and punishment like the Indian Penal Code, the Terrorist and
Disruptive Activities (Prevention) Act etc. It makes provision for
incorporation of the companies, its share capital and debentures,
management and administration, allotment of shares and debentures, C
constitution of Board of Directors, prevention of oppression and
mismanagement, winding up of the company etc. The heading of Part
XIII of the Companies Act is "General" and a few provisions therein,
namely, Section 628 to 631 create offences and also prescribe penalty
for the same. Having regard to the purpose for which Section 630 has
been enacted viz. to retrieve the property of the company and the D
salient features of the statute (Companies Act) it is not possible to
hold it as a penal provision as the normal attributes of crime and
punishment are not present here. It cannot be said to be an offence
against the society at lar.ge nor is the object of awarding sentence
preventive or reformative. In such circumstances the principle 9f E
interpretation relating to criminal statutes that the same should be
strictly construed will not be applicable"

"Even otherwise as shown earlier, the wrongful withholding of
property of the company has been made punishable with fine only. A
substantive sentence or imprisonment can be awarded only where F
there is a non-compliance with the order of the court regarding delivery
or refund of the property. Obviously, this order would be passed
against a specific person or persons whether an employee, past
employee or a legal heir or family member of such an employee and
only if such named person does not comply with the order of the
court, he would be liable to be sentenced which may extend to G
imprisonment for two years. At this stage, namely, where the court
would award a substantive sentence of imprisonment for non-
compliance with its order the question of enlarging or widening the
language of the section cannot arise as the order would be directed
against a specifically named person"
H
276 SUPREME COURT REPORTS [2005) SUPP. 1 S.C.R.
·.
A From above narration of authorities, it is absolutely clear that Section 630 of
the Companies Act, does not only cover cases of the present employee or
officer of the company and this provision strictly speaking is not penal in the
sense as understood un~er penal law. The main purpose to make action an
offence under Section 630 is to provide a speedy"and summary procedure for
retrieving the property of the company where it has been wrongly obtained
B by the employee or officer of the company or where the property has been
lawfully obtained but unlawfully retained after termination of the employment
of the employee or the officer and to impose a fine on the officer or employee
of the company if found in breach of the provision of Section 630 of the
~
Companies Act and further to issue direction if the Court feels it just and
c appropriate for delivery of the possession of the property of the company and
to impose a sentence of imprisonment when there is non compliance of the
order.of the Court regarding delivery· or refund of the property of the company.

· On 23.12.1994, Respondents l and 2 filed a civil suit No.7 of 1995 for
specific performance of the contract for transfer of the flat at Blue Heaven
D Cooperative Housing Society. The High Court had passed an order with the
consent of the parties that the plaintiff i.e. Respondent No.2 shall not be
dispossessed from the premises i.e. flat at Sonmarg except with due process
of law. The proceedings taken up by the appellant in the Court under Section
630 of the Companies Act were held not to be the proceedings under due
process of law. We have aiready seen that Section 630 of the Companies Act
E provides for summary legal remedy for seeking possession of the property of
the company. Due process of law in the present context would ordinarily
mean such an exercise of power by the parties as the settled principles of law
permit and/or a cm;rse of legal proceedings, according to those rules and
principles which have been established in our systems of jurisprudence for
F the enforcement and protection of private rights. Due process of law would
in short mean a procedure established by law, which is a procedure fixed or
laid down in law. When the High Court has passed an order of injunction,
in the aforesaid terms, what is meant by the High Court is, that the Company
shall not take forcibly possession of Sonmarg fla,t during the pendency of the
' . .
suit and Company was given liberty to take, steps for possession as is
G permissible under law including the provisions of any Statute giving right to
obtain possession to the company in the facts and circumstances of the case. '
The company can prove the unlawful possession of the property by the
employee or his or her legal representativ~ after the demise o_f the employee
or an officer of the company. The company has the remedy to initiate action
H under Section 630(1) and 011 conviction by the Competent Criminal Court it
SHUBHSHANTI SERVICES LTD. 1·. MANJULAS.AGARWALLA[NAOLEKAR,J.] 277

can approach the same Court for directing delivery of possession which sub- A
Section (2) of Section 630 of the Companies Act provides. The remedy is
provided in the Statute itself and the High Court's order by no stretch of
imagination can be read to mean that the Company has to necessarily approach
the civil court only for obtaining possession of the Sonmarg flat and that the
remedy available under the Companies Act cannot be resorted. In our opinion
the decision of the High Court that Section 630 of the Companies Act being B
penal in nature, the proceeding thereunder cannot be construed to be a
proceeding taken in due process of law, cannot be sustained. Filing of civil
suit for possession by the Company does not deprive the Company of the
right to institute prosecution under the Companies Act and incidentally get
an order for delivery of possession. It is stated that the civil suit was filed by C
, way of abundant caution as well as to obtain reliefs which cannot be granted
by a Criminal Court trying an offence under Section 630.

The next important question is whether the possession of respondents
of the property belonging to the company, namely, the Sonmarg flat, after the
death of Shri S.C. Agarwalla, is unlawful and unauthorized and therefore D
wrongful. Both the Courts, namely, the Court of Magistrate and the High
Court on appreciation of the material placed before them have clearly held
that after the death of Shri Agarwalla, on the basis of assurance given by the
Chairman of the Board of Directors of the appellant-company, Shri Goenka
to Respondent No.1 the said flat is being occupied by the Respondents. We E
have summarized the High Court's ultimate finding on this issue on the
question of assurance given by Chairman Shri Goenka to Respondent No. I.
The learned counsel for the appellant took us through the judgment of High
Court and the record in considerable detail for the purpose of disputing this
finding. Counsel for the appellant could able to point to scarcely any error
in this finding based on evidence on record. He, however, submitted, that, in F
relying on this finding, the Judge has drawn entirely wrong inference. The
substance of his full and careful argument in this context may be summarized
as follows:

It is urged by the learned senior counsel for the appellant that the High
Court has failed to appreciate that the permission, if any, given to Respondent G
No; l to live in Sonmarg flat till the possession of the flat at Blue Heaven was
delivered to respondents, by the Chairman Shri Goenka, being without any
authority of law and being outside the powers vested in the Chairman, would
not be binding on or enforceable against the company. It is submitted that
those powers could only be exercised by the Board of Directors or by Chairman G
278 SUPREME COURT REPOl:lTS [2005] SUPP. I S.C.R.

A only with specific authorization to that effect by the Board of Directors.
Countering this argument, it is urged by the learned counsel for Respondents
1 and 2 that the findings arrived at by both the courts below that possession
of Respondents I and 2 is permissible and not wrongful as the respondents
have been assured by the Chairman of the Company to continue to live in the ·c
B flat at Sonmarg till the possession of the flat at Blue Heaven is delivered to
them is based on proper assessment of relevant material on record and does
not warrant any interference by this Court. The respondents' possession of
the flat being permissive cannotbe hel'1 to be wrongful to attract the provisions
of Section 630 of Companies Act.

C The question really is whether the Chairman of the Board of Directors
of the Company has the authority to give such an assurance to Respondents
1 and 2 when he met them at the condolence meeting after the demise of Shri
S.C. Agarwalla, which cotdd bind the company and thereby could it be taken
as a permission given by the company to respondents I and 2 to reside in
Sonmarg flat and thereby their possession could 1 be said to be a lawful
D possession. In the matter of company ·affairs, Directors act as a body and
collectively as a Board. Any Director acting individually has no power to act
on behalf of the company 'in respect of any matter except. to the extent to
which any power or powers of the Board have been delegated to him by the
Board within the limit permitted by the Companies Act or any other law. The
E o:
position th~ ~hairman of the Bodard ohf Directors i~ not substahnt~ally diffefrehnt
from an md1v1dual Director. Un er t e Compantes Act, C airman o t e
company does not have any special or extraordinary rights to be exercised by
him without being authorized by the Board of Directors. The Board of Directors
of course have an authority to delegate the power or authority to act for and
on behalf of the company to the Chairman of the Board of Directors.
F
Section .291 of the Companies Act authorizes the Board of Directors of
the Company to exercise such powers or of such acts or things as the company
is authorized to exercise and do such acts or things, except in the matter
where the power is to be exercised by the company in general meeting. The
exercise of the powers by the Board shall be subject to the provisions contained
G in the Companies Act or any other Act or in the Memorandum or Articles of
the company. Therefore, under Section 291 of the Companies Act, the action
of the Board of Directors should be in .conformity with the provisions of the
Company Law or any other enactment or in conformity with the memorandum
or articles Of association of th.e company. It is the specific case of the
H respondentS which has been found correct by the Courts that they are holding
SHUBH SHANTI SERVICES LTD. v. MANJULA S.AGARWALLA [NAOLEKAR, J.] 279 .

possession of the company's flat at Sonmarg on the oral assurance given by A
Shri Goenka, Chairman of the Board of Directors that they can continue to
reside in the said flat until the possession of the flat at Blt1e Heaven Cooperative
Society is given to them. Admittedly the flat at Sonmarg belongs to the
Company. Shri S.C. Aggarwalla, husband of Respondent No.I and father of
Respondent No.2 was the ex employee of the Company. He expired when he
was in the employment of.the company and respondents l and 2 were residing B
in the flat after the demise of Shri Aggarwalla as his heirs. Thus it is for
Respondents 1 and 2 to show the ·authority of Shri Goenka to bind the
company on the basis of the oral assurance given to them by him to retain
the possession of the flat. The High Court has not referred to any evidence
to that effect led by the respondents, nor there is any finding that the Board C
of Directors have authorized the Chairman Shri Goenka to give such an
assurance for and on behalf of the company.

On 28th of December 1993 a letter was sent by appellant requesting
Respondent No. l to vacate the premises and handover peaceful possession of
the premises within 45 days of the receipt of the letter. The contents of the D
letter are that Shri S.C. Agarwalla was occupying the premises as a facility
granted to him by the company until he was in the employment of the company.
On account of the demise of Shri Agarwalla, the company deferred the request
for vacation of the said premises; that more than a year has lapsed since the

.
.
demise of Shri Agarwalla, it is essential for the company to take possession E
of the same. The correspondence placed on record by parties also does not .
indicate that the Chairman of the Company Mr. Goenka gave ·an assurance
on the basis that he has been authorized to do so by the Board of Directors.
In the absence of any authority to the Chairman by the Board of Directors
to act for and on behalf of the company, the assurance given by him to the
respondents would not bindthe company, nor it will create a binding agreement F
between the parties, namely, Respondents 1 and 2 and the company to permit
the respondents to remain in possession even after the death of Shri Agarwalla,
of the flat in Sonmarg. Apart from this, the Board of Directors itself could
exercise the powers in accordance with the memorandum of association or
the artieles of the company. Any power exercised beyond the memor.andum G
or the articles of the company would not bind the company. Any assurance
given by the Board of Directors either should be authorised object of the
companyJ~y the memorandum of association or the articles of the company
·or its purpose should be reasonably ancillary or incidental to carrying on the
company's business.
H
280 SUPREME COURT REPORTS [2005] SUPP. I S.C.R.

•A Evidence produced on record indicates that agreement was entered. into
between· the company and husband of the respondent No. I regarding Blue
Heaven flat. Late Shri Agarwalla was old employee of the company since
-
1971. He expired on 2.11.1992 and assurance was given by the chainnan to
widow of ex employee with whom he had long standing relation, when he
went to see her to console her on 4.11.92, barely two days after the death of
B Shri Agarwalla~ Such evidence in our opinion irresistibly point, predominant,
if not, the only consideration operating iff·the mind of chainnan was to
console the widow and to pennit her to live in the flat for some time. The
assurance given to respondents 1 and 2 by the chainnan-of the company has
m'ore of a gratuitous and compassionate flavour and less to do with the .,
C interest' of the ·company in mind. Moreover, it is difficult to comprehend how
the chairman could promise on behalf of the Company that the respondents
will be permitted to remain in flat till delivery of flat of Blue Heavan, when
he himself was not sure of the time the company would get the possession
. of the Blue Heaven flat. . That apart, the act of the Chainnan cannot be
con·strued to be one done incidentai to the business of the Company or as a
D matter of necessity.
After the death of Shri Agarwalla on 2.11.1992, the respondents I and
2 remained in possession of the company's Sonmarg flat. Admittedly they
were not in employment of the company nor company has authorized them
E to remain in possession of the same particularly after notice dated 9.11.1994
to vacate the premises and handover the possession .to the company. The ..
possession of the company's flat by the Respondents, after the service of
notice to'vacate the premises by the company, is wrongful withholding of the
property of the company. The respondents by having wrongfully withheld
the possession of the company's flat and not delivering the property to the
F company, h'ave committed an offence. The interim order of the High Court
· dated 16;1 l.1998 in the civil suit filed by the appellant-Company does not
wipe out the offence committed already for which criminal complaint was
filed. Subsequent to that order, the possession may not be wrongful, but on
the date of complaint and till the date of that order, the Respondents did
· wrongfully withhold that property, attracting the offence under Section 630(1 ).
G Having regard to the factual position of. the case, we think that imposition of
fine of Rupees One thousand each wou Id be a proper punishment for wrongful
withholding the Sonmarg flat. Accordingly, respondents l and 2 are sentenced
to pay fine of Rupees one thousand each. We would like to make it clear that ·
so long as order of the High Court dated 16.11.1998 in Civil Suit No.2391
H of 1997-M/s. Herdillia Chemicals Ltd. versus Smt. Manjula Agarwala and
SHUSH SHANTI SERVICES LTD."· MANJULA S.AGARWALLA [NAOLEKAR, J.] 281
others, appointing the Court Receiver and delivering him symbolic possession, A
and actual possession as agent of Receiver _to Respondent No. I stands, no
direction can be given under Section 630(2) for delivery of actual possession
of Sonmarg flat to appellant. It is of course open to the petitioner to approach
the Civil Court for suitable orders. The High Court may dispose of both the
suits viz., Suit No.7/95 and 2391/97 expeditiously, as far as possible within B
one year:

For the aforesaid reasons, the appeal is partly allowed. The judgment
and order of the High Court and that of the Addi. Chief Metropolitan
Magistrate, 40th Court at Girgaum, Bombay are set aside. However, in the
facts and circumstances of the case, we direct the parties to bear their own C
costs.

N.J. Appeal Partly allowed.

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