Hooghly Mills Company Ltd vs The State Of West Bengal

CRIMINAL APPEAL NO. 1571 OF 2019 [Arising out of SLP (Crl.) No. 9527 of 2017]

Hooghly Mills Company Ltd. .....Appellant

Versus

The State of West Bengal and Anr. .....Respondents

JUDGMENT

MOHAN M. SHANTANAGOUDAR, J.

1. Leave granted.

2. This appeal by special leave arises out of judgement dated

24.8.2017 of the Calcutta High Court allowing the 2 nd

Respondent’s Criminal Revision Petition against order dated

6.9.2010 of the Judicial Magistrate, Alipore and order dated

21.12.2012 of the Additional Sessions Judge, Alipore.

3. The facts giving rise to this appeal are as follows: The Signature Not Verified Digitally signed by GULSHAN KUMAR ARORA Date: 2019.10.18 10:20:17 IST

appellant is an ‘existing’ company within the meaning of the Reason:

1

Companies Act, 1956 (for short ‘1956 Act’), which entered into

agreement for sale dated 26.4.2008 for purchase of a flat situated

on the 3rd Floor, of Plot-D in Sreekunj, 13, Gurusaday Road, Police

Station-Karaya, Kolkata-700019 (hereinafter ‘disputed property’)

with the legal heirs of one late Mr. Arun Kumar Bajoria

(hereinafter ‘vendors’). Per the terms of the agreement, the

vendors would execute and register the deed of conveyance in

favour of the appellant upon payment of the entire sale

consideration of Rs 2,02,26,000/-. However in the interim, under

Clause 6 of the agreement, the appellant company would be put

into possession of the property subject to payment of monthly

rent of Rs 84,275/-. This agreement is not disputed.

The appellant’s case is that the 2 nd Respondent/accused Mr.

Bal Binode Bajoria was a director of the appellant company from

1988 to 2008. He was allowed to use and occupy the disputed

property on and from 1.5.2008 by virtue of holding the office of

director. The 2nd Respondent was to retire by rotation from the

Board of Directors in the Annual General Meeting of the appellant

company held on 22.11.2008; however he offered himself for re-

election. The members present in the meeting voted against him

and thereafter the 2nd Respondent ceased to be a director of the

2 appellant company. Consequently he was required to return the

disputed property to the company; however he failed to do so.

The appellant company on 20.4.2009 asked the 2 nd

Respondent to vacate and deliver physical possession of the

disputed property. When he refused, the appellant sent a letter on

30.4.2009 to the 2nd Respondent requesting delivery of

possession. When the 2nd Respondent still failed to comply with

the appellant’s request, criminal complaint was filed against him

under Section 630(1) of the 1956 Act on 11.8.2009. During the

pendency of this complaint, the appellant company filed an

application on 29.4.2010 under Section 630(2) of the 1956 Act for

dispossessing the 2nd Respondent from the disputed property.

Section 630 reads as follows:

“630. Penalty for wrongful withholding of property.

(1) If any officer or employee of a company-

(a) wrongfully obtains possession of any property of a company; or

(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 authorised by this Act;

he shall, on the complaint of the company or any creditor or contributory thereof, be punishable with fine which may extend to one thousand rupees.

(2) The Court trying the offence may also order such officer or employee to deliver up or refund, within a time to be fixed by the Court, any such property

3 wrongfully obtained or wrongfully withheld or knowingly misapplied, or in default, to suffer imprisonment for a term which may extend to two years.”

Contrary to the appellant’s allegations, the 2 nd Respondent

contends that he had a mutual understanding/oral agreement

with the deceased Mr. Arun Kumar Bajoria, who was his cousin

brother, under which the deceased had paid consideration of Rs

9,10,170/- for construction of the disputed property. It was agreed

between the 2nd Respondent and Arun Kumar Bajoria that the

latter would transfer the disputed property to the 2 nd Respondent

and his nominee upon payment of the purchase price, once the

2nd Respondent was in a position to pay such amount. In other

words, according to the 2nd Respondent, he was permitted to

purchase the disputed property based on his oral understanding

with the deceased Arun Kumar Bajoria on and after the date on

which he tendered sale consideration to Arun Kumar Bajoria.

However, after Arun Kumar Bajoria expired, relations

between the 2nd Respondent and Arun Kumar Bajoria’s family

became strained. Hence the vendors failed to execute a deed of

conveyance as agreed upon between the 2 nd Respondent and

their predecessor-in-interest, and also wrongfully removed him

from Directorship of the appellant company.

4 Thereafter the 2nd Respondent filed Suit No. 2126/2009

before the Civil Judge (Senior Division) at Alipore against the

vendors, praying for specific performance and a permanent

injunction restraining the vendors from disturbing his possession,

based upon the supposed oral agreement/understanding of sale

he had with Arun Kumar Bajoria. The Civil Judge (Senior Division)

by order dated 6.7.2009 issued a temporary injunction directing

the parties to maintain status quo in respect of possession of the

disputed property. This suit is still pending adjudication.

4. The learned Judicial Magistrate at Alipore by order dated

6.9.2010 allowed the appellant’s application under Section

630(2). The Magistrate relied upon this Court’s decision in Atul

Mathur v. Atul Kalra, (1989) 4 SCC 514, and the Calcutta High

Court’s decision in Tata Tea Limited v. Fazlur Rahman, (2001)

104 Comp Cas 718 Cal. to hold that the pendency of a civil suit

would not bar the filing of a criminal complaint in respect of the

disputed property under Section 630, and that an application

under Section 630(2) could be allowed even before final disposal

of the complaint under Section 630(1) of the 1956 Act.

The Magistrate further held that in view of this Court’s

decision in Baldev Krishna Sahi v. Shipping Corporation of

5 India Limited, (1987) 4 SCC 361, and the Calcutta High Court’s

decision in Metal Box India v. State of West Bengal, (1997) 2

CHN 423, the term ‘officer or employee’ in Section 630 would

include erstwhile officers of the company who have wrongfully

retained possession of the company’s property subsequent to

cessation of their employment. Therefore the Magistrate, taking

into account the fact that the accused/2 nd Respondent had not

denied that the disputed property belonged to the appellant

company and that he was given possession of the flat by the

company for his accommodation, directed the 2 nd Respondent to

vacate and hand over possession of the disputed property to the

appellant company.

The learned Sessions Judge at Alipore by order dated

21.12.2012 dismissed the 2nd Respondent’s revisional application

under Section 397 read with Section 399 of the Criminal

Procedure Code, 1973 (‘Cr.P.C’), and affirmed the Magistrate’s

order, noting that since the appellant company was not a party to

the civil Suit No. 2126/2009 between the 2 nd Respondent and the

vendors, the pendency of the suit would not bar criminal

proceedings against him.

6 However the High Court in the impugned judgement allowed

the 2nd Respondent’s petition under Section 482, Cr.P.C and set

aside the findings of the Magistrate and the Sessions Judge on the

ground that there was no evidence to prove that the disputed

property was given to the 2nd Respondent by the appellant

company as a perquisite for his service as director, either at the

time of his induction into the Board of Directors, or after

execution of the agreement for sale dated 26.4.2008. Rather, the

2nd Respondent had been a director of the company since 1988,

and the disputed property had been in his possession at least

since 2001, long before the appellant company and the vendors

entered into an agreement for sale. Hence the decisions in

Baldev Krishna Sahi (supra), Metal Box India (supra) and

Tata Tea Limited (supra) would not be applicable to the present

case as in those decisions; property had been allotted by the

company to the accused officers/employees as a perquisite of

their service.

The High Court further held that since there was no evidence

that any deed of conveyance was registered with respect to the

agreement for sale dated 26.4.2008 (supra), and the company

had not paid any consideration or advance rent at the time of the

7 agreement, it could not be said that the company had any title to

the disputed property. Hence the High Court held that the lower

court finding that the disputed property had been given to the 2 nd

Respondent by the company was patently incorrect, and that

Section 630(2) of the 1956 Act would not apply to the present

case; and consequently set aside the lower courts’ orders.

5. Learned senior counsel for the appellant, Mr. Shyam Divan,

emphatically argued that the High Court’s finding was erroneous

in as much as it found that the appellant company had no right to

claim recovery of possession of the disputed property merely

because no sale deed was executed. The 2 nd Respondent himself

has admitted in his counter-affidavit that he had delivered the

original title documents of the disputed property to the appellant

company by letter dated 9.6.2008.

Further, that in Atul Mathur (supra), this Court had granted

relief to the complainant company even though the property was

taken on a leave-and-license basis. In the present case, Clause 6

of the agreement for sale dated 26.4.2008 has created a monthly

tenancy in favour of the appellant; hence the appellant has

gained the right to possession of the property on that basis. To

support this contention, he placed on record a certificate of LB Jha

8 & Co Chartered Accountants dated 16.1.2018 showing that the

appellant company has paid rent of Rs 91,01,700/- in respect of

the disputed property from 1.1.2009 to 31.12.2017; as well as

TDS (Tax deducted at source) certificates showing that the

appellant company had deducted tax on the rent income while

making payments to the vendors.

He further argued that since the appellant company was not

a party to the civil suit between the 2 nd Respondent and the

vendors, the order in the civil suit would not be binding on the

appellant company; and that it was not required that the

officer/employee accused under Section 630 should be in

possession of the disputed property as a perquisite of his service.

Therefore the High Court had erred in exercising its powers under

Section 482 of the Cr.P.C.

6. Per contra, learned senior counsel for the respondent Mr.

S.B. Upadhyay contended that the complaint is nothing but a

scheme of the appellant company, which is composed of the 2 nd

Respondent’s own relatives, to oust him from possession of the

disputed property. The company is owned and controlled by the

vendors themselves, and the criminal complaint is nothing but an

alternate mechanism to oust the 2nd Respondent from the

9 disputed property since the civil court had directed maintenance

of status quo; that the 2nd Respondent was wrongfully made to

believe by his relatives, i.e. the vendors, that the title documents

of the disputed property were to be sent for updation of records,

hence he had handed them over to the vendors’ custody, and it

was only later that he came to know that the documents had

been wrongfully handed over to the appellant company.

That he has been in possession of the disputed property

since 1994; and even the appellant has admitted that he has

been in possession at least since 2001; whereas the appellant

company entered into an agreement for sale with the vendors

only in 2008, that too via an unregistered sale deed.

Consequently it cannot be said that the appellant had any title to

the disputed property, and that the company gave the 2 nd

Respondent possession of the property in his capacity as an

officer of the company. Hence Section 630 is not attracted to the

present case.

7. Therefore the following issues arise for consideration in the

present appeal:

First, whether an application under Section 630(2) of the

1956 Act was maintainable, in spite of pendency of the civil suit

10 and issue of temporary injunction in respect of the disputed

property?

Second, whether an order could be made under Section

630(2) prior to final disposal of the complaint under Section

630(1)?

Third, if the first and second issues are answered in the

affirmative, whether the company is entitled to pray for

dispossession of 2nd Respondent from the property?

Fourth, whether it is required that 2nd Respondent should

have been in possession of the disputed property as a perquisite

of his service?

Finally, whether in light of the answers to the

aforementioned issues, the High Court was justified in exercising

its inherent powers under Section 482 of the Cr.P.C?

8. With respect to the first issue, it is undisputed that a

company has a separate legal personality. Hence even if we

accept the respondents’ contention that the appellant company is

owned and controlled by the vendors themselves, any orders

issued in the civil suit between 2nd Respondent and the vendors

would not be binding upon the appellant company as it is not a

party to the suit. It is true that in some cases the Court may

11 pierce the ‘corporate veil’ and look at the reality behind the entity

if it is found that the device of incorporation has been used to

perpetrate some illegality or fraud (See Delhi Development

Authority v. Skipper Construction Company (P) Ltd., (1996)

4 SCC 622). However no such illegality or fraud has been pleaded

and proved in the present case.

In any case, it has been settled by this Court in Damodar

Das Jain v. Krishna Charan Chakraborti, (1989) 4 SCC 531,

and Atul Mathur (supra) that the pendency of a civil suit in

respect of a property, would not bar a complaint under Section

630 with respect to the same property, even if it is between the

same parties, if there is no dispute or no bona fide dispute

regarding the company’s right over the property. The mere fact

that the accused employee has refuted the company’s claim to

possession would not make the dispute bona fide.

In the present case, we find that there is no bona fide

dispute in as much as the 2 nd Respondent’s entire claim to the

disputed property is based on an oral agreement/‘understanding’,

as to the terms of which no documentary evidence has been

produced. Whereas the appellant company has at least been put

into symbolic possession of the property by Clause 6 of the

12 agreement for sale dated 26.4.2008, which 2 nd Respondent has

not disputed.

The question is then whether the ratio in Atul Mathur

(supra) allows for co-extensive criminal proceedings under

Section 630 of the 1956 Act even where the civil court has

directed maintenance of status quo with respect to the property.

We are of the considered opinion that in a case such as the

present complaint, where there was only an oral agreement in

favour of the accused employee for purchase of the property, but

the civil court has issued a temporary injunction directing status

quo, the accused will nevertheless acquire the right to possess

the disputed property lawfully only if he is successful in obtaining

a decree in his favour in the civil suit.

The mere issuance of a temporary injunction by the civil

court directing maintenance of status quo in respect of the

disputed property does not make the dispute bona fide or bar the

company’s right to recover the disputed property from the

accused employee under Section 630 of the 1956 Act. At best,

such an injunction would only bar the company from creating any

rights in favour of third parties pending disposal of the civil suit.

This is because the cause of action in the civil suit is completely

13 different from the question of whether the employee is wrongfully

withholding the company’s property, which is the issue for

consideration in the present criminal proceedings. If prima facie

the trial court finds that the company has the right to possess the

property, the issuance of a temporary injunction by the civil court

cannot be used to defeat the company’s lawful right of

possession. This is also reflected in the following relevant clauses

of Section 41 of the Specific Relief Act, 1963.

“41. Injunction when refused.—An injunction cannot be granted— …(b) to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought;…

(d) to restrain any person from instituting or prosecuting any proceeding in a criminal matter…” (See Jolly Durga Prasad v. Goodricks Group Ltd., (1999)

97 Comp Cas 698 (Cal); S. Palaniswamy v. Sree Janardhana

Mills Ltd, (1993) 76 Com Cases 323 (Mad).) Based on the aforementioned discussion, it can be concluded

that the principle laid down in Atul Mathur (supra) would also

extend to cases under Section 630 where a civil court has, in spite

of there being no bona fide dispute, issued an order of temporary

injunction in respect of the disputed property. In such a case, the

14 pendency of the civil suit and any interim reliefs granted therein

would not bar criminal prosecution under Section 630.

9. Similarly, with respect to the second issue, we are of the

considered opinion that where the Magistrate has found that

prima facie the company has a right to possession of the disputed

property, he may grant interlocutory relief under Section 630(2)

prior to conclusion of the trial under Section 630(1). Courts have

time and again observed that Section 630 has to be given a

liberal interpretation so as to facilitate expeditious recovery of the

company’s property. The following observations of this Court in

Baldev Krishna Sahi (supra) are useful in this regard:

“7. The beneficent provision contained in Section 630 no doubt penal, has been purposely enacted by the legislature with the object of providing a summary procedure for retrieving the property of the company

(a) where an officer or employee of a company wrongfully obtains possession of property of the company, or (b) where having been placed in possession of any such property during the course of his employment wrongfully withholds possession of it after the termination of his employment. It is the duty of the Court to place a broad and liberal construction on the provision in furtherance of the object and purpose of the legislation which would suppress the mischief and advance the remedy.” (emphasis supplied)

15 Therefore this Court in Baldev Krishna Sahi held that the

expression ‘officer or employee’ in Section 630, though it

primarily applies to existing officers and employees, may also

take in past officers and employees. We may also refer to the

following relevant observations of the Bombay High Court in

Kannankandi Gopal Krishna Nair v. Prakash Chunder

Juneja, (1994) 81 Comp Cas 104,:

“4. The courts have been flooded with prosecutions instituted by companies under section 630 of the Companies Act and it has been demonstrated that this provision of law has almost been rendered impotent by employees and ex-employees who hold on to company property by litigating for decades together. At the end of this long exercise, if the accused loses, the company is expected to consider itself fortunate if the premises are restored and the offence, if any, is to be treated as, to use a common parlance expression, "forgiven and forgotten". Another ploy that has been successfully employed in these cases is to take advantage of the desperation of the poor landlord who, in the midst of these legal skirmishes, genuinely feels that it is better to make the best of the bad bargain by selling out to the party in possession. The accused who, on the one hand, has frustrated the law as far as section 630 of the Companies Act is concerned thereafter contends that he cannot be ordered to restore possession of his own flat. In other words, through such a devious procedure, the accused is permitted to take advantage of his own wrong which is anathema to accepted canons of criminal jurisprudence. Such gymnastics, if permitted, will have the effect of nullifying the rule of law and the courts, with some clear thinking, will, therefore, have to adopt a no-nonsense policy in the event of such mischief.”

16 (emphasis supplied)

Hence, given that the primary object of Section 630 is to

provide a speedy mechanism for restoration of wrongfully

withheld property to companies, we find that the provision should

be construed as far as possible to facilitate a remedy in favour of

the aggrieved company and to prevent the wrongful retention of

the property for an unduly long period by the accused.

There is no stipulation in Section 630(2) that an order for

delivery of wrongfully withheld property must be made only after

the accused has been convicted under Section 630(1). Rather, it

says the Court ‘trying’ the offence may direct the delivery of such

property, which indicates that such an order may be passed at

any stage by the trial court. This Court in Baldev Krishna Sahi

(supra) upon finding that a case under Section 630(1) was prima

facie made out directed the petitioner therein to vacate the

disputed premises during pendency of the substantive complaint

under Section 630(1). Therefore in the present case, the courts

below have not committed any error in allowing the appellant

company’s application under Section 630(2) during pendency of

substantive criminal proceedings.

17 10. With respect to the third and fourth issues, we find that the

High Court has gone against the spirit of the provision, as

enunciated by this Court in Baldev Krishna Sahi (supra), by

strictly interpreting Section 630 to mean that the appellant

company must have title by way of ownership to the disputed

property and that the accused should have been in possession of

the flat as a perquisite of his service.

Section 630 nowhere requires that the company should have

title to the property. The emphasis is on whether the accused has

obtained wrongful possession of the property which defeats the

company’s lawful right of exclusive possession, even though the

property as such may not belong to the company but to a third-

party landlord or licensor, as was the case in Atul Mathur

(supra). The term ‘property of the company’ has to be construed

widely having regard to the beneficial object of the Section (See

Kannankandi Gopal Krishna Nair (supra); PV George v.

Jayems Engineering Co. (P) Ltd, (1990) 2 Comp LJ 62 (Mad)).

The 2nd Respondent has admitted that after the death of

Arun Kumar Bajoria, the disputed property was inherited by the

vendors who subsequently transferred possession to the

appellant company by the agreement dated 26.4.2008. The 2 nd

18 Respondent also handed over the title deeds of the property to

the appellant company. Therefore, till the time that the 2 nd

Respondent does not prove in the civil suit that the vendors were

required to have sold the property to him, it is the company which

has the exclusive right to possess the property at present.

Further, it is true that in the majority of cases falling under

the ambit of Section 630, it has been that property possessed by

the company was allotted to an employee for the purposes of

residential accommodation, etc. as an incidence of his service, at

the first instance itself. In the present case, the 2 nd Respondent

has been a director of the company since 1988, and claims to be

in permissive possession of the disputed property as per the

alleged understanding between him and his relative, the

deceased Arun Kumar Bajoria, since 1994. However the company

acquired the disputed property only in 2008. Be that as it may,

the 2nd Respondent has failed to rebut the fact that as of

26.4.2008 it is the company which has acquired the exclusive

right to possess the property, and the company handed over

possession to him w.e.f 1.5.2008 only in his capacity as the

director of the company. Whatever may have been the situation

19 prior to 26.4.2008, on and after that date the company became

entitled to recover possession of the disputed property.

We find no substance in the 2 nd Respondent’s argument that

he was misled into delivering the title documents of the disputed

property by his sister-in-law on the ground that they were

required for updation of records. The 2 nd Respondent, being an

office bearer in the company, could have got the records updated

on his own or could have delivered it to the vendors, if it was on

their insistence that he handed over the documents. However the

letter dated 9.6.2008 shows that the title documents were

delivered to a representative of the appellant company. This

shows that the 2nd Respondent acknowledged that title was to be

transferred to the company vide the agreement dated 26.4.2008.

Section 630 nowhere stipulates that the property should

have been allotted by the company to the accused as a perquisite

of service. There may be a number of purposes for which the

accused may be given lawful possession of the company’s

property during the course of employment for example, for safe

custody of the property or for maintenance thereof. The purpose

for which and the time at which possession was given is

irrelevant. What is sufficient is that the accused was put into

20 possession of the property in their capacity as an

officer/employee of the company and continued to withhold such

property without having any independent right, title or interest

thereto even after cessation of his employment. As we have found

in the discussion supra, mere oral agreement or understanding

would not be sufficient to establish such an independent right.

11. Coming to the final issue, Section 397(2) of the Cr.P.C

provides that the High Court’s powers of revision shall not be

exercised in relation to any interlocutory order passed in any

appeal, inquiry, trial or other proceeding. Whereas Section 482 of

the Cr.P.C provides that nothing in the Cr.P.C will limit the High

Court’s inherent powers to prevent abuse of process or to secure

the ends of justice. Hence the High Court may exercise its

inherent powers under Section 482 to set aside an interlocutory

order, notwithstanding the bar under Section 397(2). However it

is settled law that this can only be done in exceptional cases. This

is, for example, where a criminal proceeding has been initiated

illegally, vexatiously or without jurisdiction (See Madhu Limaye

v. State of Maharashtra, (1977) 4 SCC 551).

In the present case, the order of the Magistrate under

Section 630(2) was an interlocutory relief based on a prima facie

21 assessment of facts and did not conclusively decide the ongoing

trial under Section 630(1). If the Magistrate finds that the

appellant company has been unable to prove that the 2 nd

Respondent was wrongfully withholding possession of the

property, such interlocutory relief shall stand vacated. In light of

the above discussion, it is clear that there was no exceptional

case of illegality or lack of jurisdiction in the interlocutory order of

the lower court calling for the exercise of the inherent powers of

the High Court under Section 482, Cr.P.C.

However we are in agreement with the High Court’s direction

that the trial under Section 630(1) ought to be completed as soon

as possible. Further, it is needless to say that if the civil court

passes a decree in favour of the 2 nd Respondent in Suit No.

2126/2009, such decree must be honoured and possession of the

disputed property may be restored to him accordingly.

12. Hence the appeal is allowed and the impugned judgement is

set aside, in the above terms.

...........................................J. (Mohan M. Shantanagoudar)

New Delhi; ...........................................J.

22 October 17, 2019. (Ajay Rastogi)

23