Case Laws Companies Act Baldev Krishna Seth Sahi Vs Shipping corporation of India

Case Laws Companies Act

Baldev Krishna Seth Sahi Vs Shipping corporation of India

PETITIONER:
BALDEV KRISHNA SAHI

Vs.

RESPONDENT:
SHIPPING CORPORATION OF INDIA LIMITED & ANR.

DATE OF JUDGMENT17/09/1987

BENCH:
SEN, A.P. (J)
BENCH:
SEN, A.P. (J)
RAY, B.C. (J)

CITATION:
1987 AIR 2245 1988 SCR (1) 168
1987 SCC (4) 361 JT 1987 (3) 581
1987 SCALE (2)544
ACT:
Companies Act, 1956: s. 630-Property of company-
Wrongful withholding of-Penalty for-officer allotted flat by
company-Refusing to vacate after retirement-Prosecution for-
Whether permissible.
Interpretation of Statutes: Penal provisions-When to be
beneficently construed.
Words & Phrases: Terms ‘officer or employee’, ‘any
property of a company’ and ‘any such property’-Meaning of-
Companies Act, 1956, s. 630.

 

HEADNOTE:
Sub-section ( l ) of s. 630 of the Companies Act, 1956
provides for launching of prosecution against an officer or
employee of a company, who (a) wrongfully obtains possession
of any property of a company, or (b) having any such
property in his possession wrongfully withholds or knowingly
misapplies the same.
The petitioner who was given a flat by the company for
his residence during the period of his employment did not
vacate it on his retirement. He was granted six months time
on humanitarian grounds upon his undertaking to comply with.
Upon his failure to vacate the premises the company lodged a
complaint against him under s. 630 of the Act for wrongful
withholding of its property. The Magistrate took congnizance
of the complaint and directed issue of process.
Dismissing the writ petition filed by him under Art.
227 of the Constitution read with s. 482 Cr. P.C. seeking to
quash the proceedings, the High Court following its
consistent view in a series of cases that the term ‘officer
or employee’ in sub-s. (1) of s. 630 must be interpreted to
mean not only the present officer or employee of company but
also to include past officers and employees of the company
and that the words ‘any such property’ in cl. (b) qualify
the words ‘any property of a company’ appearing in cl. (a),
held that the case does not call for interference.
169
In the special leave petition it was contended for the
petitioner that the provision contained in s. 630 of the Act
is a penal provision and, therefore, must be subject to a
strict construction and there is no room for intendment,
that the term ‘officer or employee’ occurring in sub-s. (1)
of s. 630 refers only to the existing officers and employees
of a company, and not the past officers, and that cl. (b) of
sub-s. (I) does not stand by itself but is interconnected
with cl. (a) thereof and therefore cl. (a) and cl. (b) must
be read together and when so read the words ‘any such
property’ in cl. (b) do not qualify the words ‘any property
of a company’ in cl. (a) and only relate to the property of
company wrongfully taken possession of by a present officer.
Dismissing the special leave petition,
^
HELD: 1. Section 630 of the Companies Act, 1956 plainly
makes it an offence if an officer or employee of the company
who was permitted to use any property of the company during
his employment, wrongfully retains or occupies the same
after the termination of his employment. [176F-G]
2.1 The term ‘officer or employee’ of a company in s.
630(1) applies not only to existing officers or employees
but also to past officers or employees if such officer or
employee either (a) wrongfully obtains possession of any
property, or (b) having obtained such property during the
course of his employment, withholds the same after the
termination of his employment. [179B-C]
2.2 The beneficent provision contained in s. 630 of the
Companies Act though penal, has been purposely enacted by
the legislature with the object of providing a summary
procedure for retrieving the property of the company. 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. [175C-E]
2.3 Sub-s. (1) of s. 630 of the Act by clauses (a) and
(b) creates two distinct and separate offences: (1) Where an
officer or employee of a company wrongfully obtains
possession of any property of the company during the course
of his employment, to which he is not entitled. Normally, it
is only the present officers and employees who can secure
possession of any property of a company. It is also possible
for such an officer or employee after termination of his
employment to wrongfully take away possession of any such
property. This is the function of cl. (a)
170
and although it primarily refers to the existing officers
and employees, it may also take in past officers and
employees. (2) Where an officer or employee of a company
having any property of a company in his possession
wrongfully withholds it or knowingly applies it to purposes
other than those expressed or directed in the articles and
authorized by the Act. It may well be that an officer or
employee may have lawfully obtained possession of any such
property during the course of his employment but wrongfully
withholds it after the termination of his employment. That
appears to be one of the functions of cl. (b). Clause (b)
also makes it an offence if any officer or employee of a
company having any property 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. That
would primarily apply to the present officers and employees
and may also include past officers and employees. There is
therefore no warrant to give a restrictive meaning to the
term ‘officer or employee’ appearing in sub-s. (1) of s. 630
of the Act. [175F-H; 176A-C]
3. It is quite evident that clauses (a) and (b) are
separated by the word ‘or’ and therefore are clearly
disjunctive. The whole object of enacting the provision is
the preservation of the property of a company by the
creation of two distinct offences by clauses (a) and.(b)
which arise under different sets of circumstances, and it
would be rendered nugatory by projecting cl. (a) into cl.
(b). 1176C, D-E]
4. According to the plain construction, the words ‘any
such property’ in cl. (b) relate to ‘any property of a
company’ as mentioned in cl. (a). It is wrongful with-
holding of such property meaning the property of the company
after termination of the employment, which is an offence
under s. 630(l)(b) of the Act. [176F; 177E-F]
5. The petitioner given one month’s time to vacate the
premises failing which the respondents to take such
proceedings as the law provides. The Additional Chief
Metropolitan Magistrate to proceed with the trial and
dispose it of expeditiously. [179D-E]
Harkishan Lakhimal Gidwani v. Achyat Kashinath Wagh &
Anr., [1982] 53 Company Cases 1, and Govind T. Jagtiani v.
Sirajuddin S. Kazi & Anr., [1984] 56 Company Cases 329,
approved.
Amritlal Chum v. Devi Ranjan Jha & Anr., [1987] 61
Company Cases 211, overruled.
171

 

JUDGMENT:
CRIMINAL APPELLATE JURISDICTION: Special Leave A
Petition (CRL. ) No. 1765 of 1987
From the Judgment and order dated 8/9.7.1987 of the
Bombay High Court in W.P. No. 332 of 1987.
V.N. Ganpule for the Petitioner.
Soli J. Sorabjee, K.J. John and A.K. Desai for the
Respondents.
The Judgment of the Court was delivered by
SEN, J. The Companies Act, 1956 by s. 630, enacts:
“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 D
(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 F to be fixed by the Court, any such
property wrongfully obtained or wrongfully
withheld or knowingly misapplied, or in default,
to suffer imprisonment for a term which may extend
to two years.”
The only question involved in this special leave
petition is as to the scope and effect of sub-s. (1) of s.
630 of the Act. The controversy is as to the meaning of the
term ‘officer or employee’ used in sub-s(1) of s. 630 and as
to the meaning of the words ‘any such property’ in cl. (b)
thereof and there is a conflict of opinion between the High
Courts of Calcutta and Bombay on the question. On a literal
construction of the term ‘officer or employee’ occurring in
sub-s. (1) of s. 630 of H
172
the Act, the High Court of Calcutta in Amritlal Chum v. Devi
Ranjan Jha & Anr., [1987] 61 Company Cases 211 held that it
refers only to the existing officers and employees of a
company. It also held that the words ‘any such property’ in
s. 630(l)(b) relate to property specified in cl. (a) viz.
property of a company wrongfully taken possession of by a
present officer or employee of the company. The High Court
of Bombay, on the other hand, has placed a beneficent
construction on the provisions contained in s. 630 and
according to it, the term ‘officer or employee’ in sub-s.
(1) of s. 630 must be interpreted to mean not only the
present officers and employees of a company but also to
include past officers and employees of the company. It is
also of the view that the words ‘any such property’ in ck
(b) qualify the words ‘any property of a company’ appearing
in cl. (a). That has been the consistent view taken by the
High Court of Bombay in a series of cases. See: Harkishan
Lakhimal Gidwani v. Achyut Kashinath Wagh & Anr., [1982] 53
Company Cases 1, Govind T. Jagtiani v. Sirajuddin S. Kazi &
Anr., [ 1984] 56 Company Cases 329 which have since been
followed in a series of cases referred to by the learned
Single Judge (Ashok Agarwal, J.).
The issues involved in the special leave petition are
of considerable importance to the corporate sector as many
of the business organisations, both in the public as well as
the private sector, are required to provide residential
accommodation to their officers and employees as a condition
of their service to attract better talent and have of
necessity to purchase residential flats in multi-storeyed
buildings in large cities and towns for the use of such
officers and employees during the course of their
employment, and the question is whether the provisions
contained in sub-s. (1) of s. 630 which provide for the
launching of a prosecution against an officer or employee of
a company for wrongful possession of such property under
cls. (a) and (b) of sub-s. (1) of s. 630 and for the
recovery of such property by the issue of process under sub-
s. (2), also extends to past officers and employees of the
company and whether the Court trying the offence has the
power to issue a process under sub-s. (2) against such
officer or employee. At the conclusion of the hearing we had
by a short order dismissed the special leave petition and
held that the view expressed by the learned Single Judge
following the earlier decisions of the High Court in
Harkishan Lakhimal Gidwani and reiterated in Govind T.
Jagtiani was to be preferred to the view to the contrary
expressed by the High Court of Calcutta in Amritlal Chum. As
the respondent Shipping Corporation of India, a public
sector undertakings, was in dire need of the flat in
question which is situate in a posh locality like the Cuffe
Parade in
173
Bombay, for the use of its senior executive, we could not
accede to the request of the learned counsel for the
petitioner to refer the case to a bench of three judges and
heard learned counsel for the parties at quit some length on
August 27,1987 and dismissed the special leave petition. The
reasons therefor follow.
At the very threshold it is necessary to set out a few
facts. The petitioner Baldev Krishan Sahi was an Under
Secretary to the Government of India in the Ministry of
Shipping & Transport and on May 21, 1974 accepted employment
as Joint Manager in the Mogul Line Limited, a Government of
India undertaking, after obtaining release from government
service. He was first allotted a service quarter. In 1975
the company purchased a spacious flat being flat No. 151 in
Jolly Maker Apartment III at 119, Cuffe Parade and the
petitioner being the senior most executive was allotted the
flat for his residence. The petitioner retired from the
service of the company on or about September 30, 1984. Prior
to that i.e. On September 26, 1984 he addressed a letter
requesting the company to permit him to continue to live in
the company’s premises during the period of his accumulated
leave after his retirement i.e. for a period of six months,
undertaking to vacate the flat as early as possible. It
appears that the company on humanitarian grounds acceded to
this request and permitted the petitioner to stay on in the
company’s flat for six months after his retirement and in
accordance with the company’s rules, he was required to pay
compensation for the use of the premises. After the expiry
of the said period of six months, the company addressed a
letter dated April 26, 1985 requesting the petitioner to
vacate the premises stating that if he failed to do so, he
would be liable to pay higher compensation as per the
company’s rules. Since the petitioner failed to vacate the
flat, the company initiated proceedings for his eviction
under the Public Premises (Eviction of Unauthorised
occupants) Act, 1971. The Estate officer by order dated
December 2, 1985 directed the eviction of the petitioner.
The petitioner carried an appeal to the City Civil &
Sessions Court, Bombay but the same was dismissed by the
Principal Judge, City Civil Court by his order dated January
16, 1986. He then preferred a revision to the High Court and
the High Court by its order dated January 28, 1986 allowed
the same, set aside the eviction order and directed the
Estate officer to give a personal hearing to the petitioner.
Instead of availing of that opportunity, the petitioner on
March 3, 1986 moved the High Court by a petition under Art.
226 of the Constitution and obtained ad-interim stay of the
proceedings before the Estate officer. A few days thereafter
i.e. On March 7, 1986 the petitioner instituted a suit being
Civil Suit No.
174
1382/86 in Small Causes Court, Bombay seeking a declaration
that he was a tenant of the disputed flat, which is now
pending.
In view of this, the company was constrained to lodge a
complaint against the petitioner under s. 630 of the Act in
the Court of the Additional Chief Metropolitan Magistrate,
37th Court, Esplanade, Bombay alleging that he was
wrongfully withholding the flat in question which had been
given to him for his residence during the period of his
employment and and thereby committed an offence punishable
under s. 630. The learned Magistrate by his order dated May
22, 1986 took cognizance of the complaint against the
petitioner and directed issue of process. On June 30, 1986
the company merged with the Shipping Corporation of India
and all its assets and liabilities were taken over by the
Corporation. The Corporation in the counter affidavit
interalia has pleaded that there is acute shortage of
housing accommodation in the Metropolitan City of Bombay and
it becomes necessary for the Corporation with a view to
attract good talent to provide suitable housing
accommodation to its officers and employees, and that due to
acute financial liquidity it is not possible for the
Corporation to buy property in Bombay for this purpose. It
is further pleaded that the petitioner was given the flat
for his residence during the period of his employment and
that he was bound to vacate the same after his retirement.
It is asserted that the petitioner with a dishonest
intention is wrongfully with holding the flat and has
instituted false and frivolous proceedings with the ulterior
object of protracting and delaying the eviction proceedings.
We are informed that the petitioner has been deliberately
and dishonestly withholding the flat covering an area of
1750 square feet in Cuffe Parade which is a posh area,
valued at approximately Rs.30 lakhs and putting it to his
own use contrary to the terms of his employment.
The first and foremost argument of learned counsel for
the petitioner is that the provision contained in s. 630 of
the Act is a penal provision and therefore must be subject
to a strict construction and there is no room for
intendment. It is submitted that on a true construction, the
scope and effect of the section was limited to such property
of the company which was wrongfully obtained by an officer
or employee of the company. Emphasis was placed upon the
words any such property’ in cl. (b) of sub-s. (1) for the
contention that cl. (b) does not stand by itself but is
inter-connected with cl. (a) and therefore both clauses (a)
and (b) must be read together. In essence, the submission is
that sub-s. (1) of s. 630 of the Act makes it an offence
where any officer or employee of a company wrongfully
withholds possession of
175
such property of the company. Secondly, it is contended that
the legislature never intended to include past officers and
employees of a company within the ambit of s. 630 of the Act
which provides for prosecution of an officer or employee of
a company for wrongfully withholding the property of the
company inasmuch as it has used different languages where it
was so intended, namely, in ss. 538 and 545. The entire
argument of the learned counsel is based upon the judgment
of the High Court of Calcutta in Amritlal Chum’s case. We
are afraid, we find it difficult to subscribe to the narrow
construction placed by the High Court of Calcutta on the
provision contained in sub-s. (I) of s. 630 of the Act which
defeats the very purpose and object with which it had been
introduced.
The beneficent provision contained in s. 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.
Section 630 of the Act which makes the wrongful
withholding of any property of a company by an officer or
employee of the company a penal offence, is typical of the
economy of language which is characteristic of the
draughtsman of the Act. The section is in two parts. Sub-s.
(1) by clauses (a) and (b) creates two distinct and separate
offences. First of these is the one contemplated by cl. (a),
namely, where an officer or employee of a company wrongfully
obtains possession of any property of the company during the
course of his employment, to which he is not entitled.
Normally, it is only the present officers and employees who
can secure possession of any property of a company. It is
also possible for such an officer or employee after
termination of his employment to wrongfully take away
possession of any such property. This is the function of cl.
(a) and although it primarily refers to the existing
officers and employees, it may also take in past officers
and employees. In contrast, cl. (b) contemplates a case
where an officer or employee of a company having any
property of a company in his possession wrongfully withholds
it or knowingly applies it to purposes other than those
expressed or directed in the
176
articles and authorised by the Act. It may well be that an
officer or employee may have lawfully obtained possession of
any such property during the course of his employment but
wrongfully withholds it after the termination of his
employment. That appears to be one of the functions of cl.
(b). It would be noticed that cl. (b) also makes it an
offence if any officer or employee of a company having any
property of the company in his possession knowingly applies
it to purposes other than those expressed or directed in the
articles and authorised by the Act. That would primarily
apply to the present officers and employees and may also
include past officers and employees. There is therefore no
warrant to give a restrictive meaning to the term ‘officer
or employee’ appearing in sub-s. (1) of s. 630 of the Act.
It is quite evident that clauses (a) and (b) are separated
by the word ‘or’ and therefore are clearly disjunctive.
The High Court of Calcutta in Amritlal Chum’s case
obviously fell into an error in seeking to curtail the ambit
of s. 630(l)(b) by giving a restrictive meaning to the terms
‘officer or employee’ which must take its colour from the
context in which it appears. The whole object of enacting
sub-s. (1) of s. 630 is the preservation of the property of
a company by the creation of two distinct offences by
clauses (a) and (b) which arise under different sets of
circumstances, and it would be rendered nugatory by
projecting cl. (a) into cl. (b). There is also no warrant
for the construction placed by the High Court of Calcutta on
the words ‘any such property’ occurring in cl. (b) as
applicable to such property of a company, possession of
which is wrongfully obtained by an officer or employee of
the company i.e. refers to the whole of cl. (b). According
to the plain construction, the words ‘any such property’ in
cl. (b) relate to any property of a company as mentioned in
cl. (a).
Section 630 of the Act plainly makes it an offence if
an officer or employee of the company who was permitted to
use any property of the company during his employment,
wrongfully retains or occupies the same after the
termination of his employment. By a curious process of
reasoning, the High Court of Calcutta in Amritlal Chum’s
case held that s. 630 of the Act applies only to the
existing officers and employees and not to those whose
employment has been terminated. In somewhat similar facts,
an officer of Messrs Jardine Hendersons Limited who had been
placed in possession of a furnished flat in premises no. 27,
Ballygunj Park, Calcutta as a condition of his service,
wrongfully retained possession thereof after ceasing to be
an officer of the company. The question was whether he had
thereby committed an
177
Offence punishable under s. 630 of the Act. N.G. Chaudhuri,
J. speaking for himself and G.C. Chatterjee, J. held that
the opening words of sub-s. (1) of s. 630, namely, ‘if any
officer or employee of a company’ qualify ‘the acts of
delinquency’ specified in clauses (a) and (b) thereof. He
further held that the High Court of Bombay was in error in
laying down in Govind T. Jagtiani’s case that for purposes
of prosecution, cl. (a) of s. 630(1) was referable to
existing officer or employee of a company, while cl. (b) was
wide enough to include former or past officer or employee of
the company inasmuch as on a plain reading of the section
the two clauses do not permit different interpretations, as
suggested. Further, whenever the framers of the law in their
wisdom thought it proper to bring within the mischief of the
provisions of the Act former officers or employees of a
company, they did not hesitate to do so and they expressly
legislated. In particular, the learned judge referred to s.
538 which provides for prosecution for offences by officers
of companies in liquidation and uses the expression ‘a past
or present officer of a company etc.’, as also s. 545 which
provides for prosecution of delinquent officers and members
of a company during the course of winding up and uses the
words ‘any past or present officer etc.’ Upon that basis, he
observed that there was no reason to give a twisted and
laboured interpretation to the provisions of s. 630 of the
Act which its plain reading does not permit. The learned
Judge also referred to the words ‘any such property’ in cl.
(b) as taking in the property mentioned in cl. (a) i.e.
property wrongfully obtained. The reasoning of the learned
Judges does not bear scrutiny and renders cl. (b) of s. 630(
l) wholly redundant.
It is the wrongful withholding of such property,
meaning the property of the company after termination of the
employment. which is an offence under s. 630(l)(b) of the
Act, as rightly pointed out by V.S. Kotwal, J. in Harkishan
Lakhimal Gidwani v. Achyut Kashinath Wagh (supra). The facts
were also identical as here. The petitioner there was the
General Manager of a company known as the English Electrical
Company of India Limited, a company incorporated under the
Companies Act, 1956 having its registered office at
Calcutta. He had been allotted the premises of a flat,
approximately 3,500 square feet in area, located at Mayfair
Gardens, Little Gibbs Road, Bombay. He had been inducted
into the flat only by virtue of his capacity as the General
Manager of the company’s branch office at Bombay but the
company allowed him to retain the same on humanitarian
grounds for a short period after his retirement to enable
him to find alternative accommodation. This humanitarian and
charitable consideration shown by the company was
reciprocated by the petitioner by adopting H
178
an adamant attitude and he declined to vacate the same on
one pretext or another. The question was whether such
wrongful retention of the flat amounted to an offence under
s. 63() of the Act. The Court repelled the contention that
s. 630 of the Act applies only to the existing officers and
employees of the company and not to former officers and
employees, and that the phrase ‘any such property’ used in
cl. (b), even though cls. (a) and (b) are separated by the
word ‘or’ which must in the context in which it appears be
read as ‘and’ and so construed, must mean withholding of
property wrongfully obtained by an existing officer or
employee. Kotwal, J. On a careful analysis of s. 630 held
that the provisions of the section apply not only to the
present officers and employees of the company but also to
past officers and employees, and observed:
“It is held that the features and deductions which
flow logically and inescapably on an analysis of
s. 630 are that: (i) Clause (a) of the section is
self-contained and independent of cl. (b) with the
capacity of creating penal liability 4 embracing
the case of an existing employee or officer of the
company. (ii) Clause (b) is equally independent
and distinct from cl. (a) as regards penal
consequences squarely covering the case of a past
employee or officer. (iii) The entitlement of an
officer to the property of the company is
contingent on the right and capacity of the
officer by virtue of his employment which is
transformed into the actual possession of the
property and the duration of such right would be
co-terminus with the terms of employment.”
In Govind T. Jagtiani v. Sirajuddin S. Kazi, (supra),
Kanade, J. fol lowed the critical analysis of s. 630 made by
Kotwal, J. as above, and observed that the entitlement of an
officer to the property of the company and the duration of
such right would be co-terminus with the terms of employment
and the right would stand extinguished with the termination
to the employment giving rise to an obligation to hand over
the property back to the company, and observed:
“If the property is held back, the retained
possession would amount to wrongful withholding of
the property of the company. While the existence
of the capacity, right and possession would be
during employment, the withholding may be even
after the termination of the employment and though
the possession as it precedes the act of retention
or withholding may be rightful in the past
affording an
179
Opportunity to withhold, the withholding may be
wrongful as in the present case.”
The learned Judge (Ashok Agarwal, J.) observes that that has
been the consistent view of the High Court and has referred
to the subsequent decisions of Khatri j J. and Kurdukar, J.
In our considered opinion, the construction placed by the
High Court on the provisions contained in s.630(1) is the
only construction possible. We accordingly uphold the view
of the High Court of Bombay that the terms ‘officer or
employee’ of a company applies not only to existing officers
or employees but also to past officers or employees if such
officer or employee either (a) wrongfully obtains possession
of any property, or (b) having obtained such property during
the course of his employment, withholds the same after the
termination of his employment. The decision to the contrary
of the High Court of Calcutta in Amritlal Chum’s case does
not lay down good law and is overruled.
In the result, the special leave petition must fail and
is dismissed with costs. The petitioner is given one month’s
time to vacate the premises failing which the respondents
will be at liberty to take such proceedings as the law
provides. We direct the Additional Chief Metropolitan
Magistrate, 37th Court, Esplanade, Bombay to proceed with
the trial of Crl. Case No. 76/S/1986 and dispose it of as
expeditiously as possible and in any event, not later than
four months from today.
P.S.S. Petition dismissed.
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