Companies Act Case Law Gopika Chandrabhushan Saran Appellants Vs M/s. XLO India Ltd.

Companies Act Case Law

Gopika Chandrabhushan Saran Appellants Vs M/s. XLO India Ltd.

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.295 OF 2009
(arising out of SLP (Crl.) No. 4685 of 2008)
Gopika Chandrabhushan Saran & Anr. …Appellants

Versus

M/s. XLO India Ltd. & Anr. …Respondents
JUDGMENT
Dr. Mukundakam Sharma, J.
1. Leave Granted.

 

2. The issue that arises for our consideration in the present appeal is

with regard to the scope of and ambit of the provisions of Section

630 of the Companies Act, 1956 (hereinafter referred to as the

“Act”), more specifically, as to whether the proceedings under the

said provision would cover within its purview only the employee of

the company or also the persons claiming a right through him or

under him.
3. In order to answer the aforesaid issue it would be necessary to set

out the facts leading to filing of the case in which the aforesaid issue

was raised and came to be considered:

Mr. Chandra Bhushan Saran (since deceased) father of appellant

no. 1 and maternal grandfather of appellant no. 2 was allotted third

floor residential premises of the building “Devenshire House”, Westfield

Estate, at Bhulabhia Desai Road, Mumbai (hereinafter referred to as

“suit premises”) since he was appointed as a Director and Technical

Advisor of one M/s Automobile Products of India Ltd. (for short “API

Ltd.”). Subsequently he was appointed as Managing Director of the said

company. The suit premises was owned by Her Highness Vijaya Raje

Scindia Maharani of Gwalior and was taken on lease by the API Ltd. for

the residential needs of its employee.

 

However, Mr. C. B. Saran resigned as Managing Director and later

on also as its Director. Subsequent to his resignation as Managing

Director, he was appointed as the Managing Director of Ex-Cello Ltd.,

respondent No. 1 herein. Mr. C. B. Saran made a representation to the

then Chairman of the API Ltd., that as a Managing Director of the

respondent No. 1 company he was entitled to rent free accommodation

and for the sake of convenience the API Ltd. may execute a licence
Page 2 of 19
agreement in respect of the suit premises in favour of respondent no. 1,

who in turn may permit him to occupy the suit premises.

 

The request of Mr. C.B. Saran was considered favourably in the

Board Meeting dated 12.06.1968 in which Mr. Saran was also present as

a Director. Accordingly, Mr. C. B. Saran along with his family, which

consisted of his wife, son and daughter, continued to occupy the said

premises.

 

Mr. C. B. Saran expired in Germany on 16.07.1980 and on his

demise his son Mr. Sanjay Saran, who was Joint Managing Director

became the Managing Director of the respondent no. 1 company. By

virtue of his employment with respondent No. 1 the suit premises was

allotted in his favour and the appellant no. 1 being sister of Mr. Sanjay

Saran and appellant no. 2 being his nephew continued to stay in the suit

premises.

 

4. It is pertinent to mention here that in the year 1976 API Ltd. filed a

suit before Ld. Small Causes Court against the respondent no. 1 and

Mr. C. B. Saran being suit no. 206/519 of 1976 disputing the tenancy

right in relation to the suit property. After the demise of Mr. C. B.
Page 3 of 19
Saran his legal heirs, including the appellant No. 1, were substituted

in the said suit.

 

5. On 20.03.2002 the respondent no. 1 also issued a letter to Mr.

Sanjay Saran stating that they are in need of the premises and the

suit premises should be vacated. In terms of the said letter Mr.

Sanjay Saran vacated the premises but however the appellants

continued to hold the possession of the said premises and refused to

surrender the possession. On the other hand, the present appellants

along with Smt. Minal Saran (since deceased), mother of appellant

No.1 and Mr. Sanjay Saran challenged the right of respondent No. 1

– company to demand possession of the suit premises.

 

6. The appellants also filed a suit before the Small Causes Court being

R.A.D Suit No. 502/2004. Another suit was filed by the appellants

before the Small Causes Court being R.A.D. Suit No. 1495/2007

against API Ltd. and Her Highness Vijaya Raje Scindia, Maharani of

Gwalior, alleging that Mr. C. B. Saran had executed a sub-tenancy in

favour of her mother and Mr. C. B. Saran was inducted in the suit

premises as a tenant by API Ltd. in or about June, 1968 on a

monthly rental of Rs. 1400/-. In the later suit status quo order was

passed which was extended subsequently.
Page 4 of 19
7. The respondent no. 1 instituted a proceeding on 04.03.2004 under

section 630 of the Act which was numbered as CC No. 74/SS/2005

against the present appellants and mother of appellant no. 1. The

Additional Chief Metropolitan Magistrate vide order dated 26.06.2007

found the appellants guilty under Section 630 of the Act and a

sentence of Rs. 5,000/- was imposed on each of the accused-

appellant with default stipulation of simple imprisonment for 15 days.

The appellants were directed to vacate the suit premises within 4

months from the date of said order and in default to suffer simple

imprisonment for 4 months.

 

8. Being aggrieved by the said order the appellants filed a criminal

appeal before the Sessions Judge which was dismissed. As the

mother of appellant No. 1 died on 29.11.2007 her appeal stood

abated. Against the said dismissal the two appellants preferred a

criminal revision application before the High Court of Bombay. The

learned Single Judge heard the parties on merits and dismissed the

appeal. The learned Single Judge while upholding the order of the

courts below held that the appellants were liable to be convicted

under Section 630 of the Act as they withhold the delivery of the

property of respondent No. 1 – company. In terms of the prayer
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made by the learned counsel appearing for the appellants, the

learned Single Judge granted stay of eight weeks to approach the

higher court, subject to an undertaking that in the event of their

failing before the higher court, they shall vacate and hand over

vacant and peaceful possession of the suit premises to respondent

no. 1.

 

9. It is against the said order that the appellants have approached this

Court. We have heard the leaned senior counsel appearing for the

parties and also scrutinised the documents on record.

 

10.Mr. Colin Gonsalves, learned senior counsel appearing for the

appellants mainly contented before us that no proceeding could have

been initiated under section 630 of the Act, as the provision of the

said section is applicable only to the employee or officer of the

company and no action could have been initiated under said section

against any other person other than the said employee or officer.

He, however, also made an averment to the effect that the mother of

the appellant No. 1 was a sub-tenant in the suit premises, in respect

to which a suit is pending before the Small Causes Court in which

status quo order has been granted, and therefore, this Court should
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await the decision in the aforesaid suit pending before the Small

Causes Court.

 

11. Mr. Dushyant Dave, learned senior counsel appearing for the

respondent company on the other hand submitted that the

judgments passed by the courts below need no interference. He

strenuously relied on the decision of this court in Lalita Jalan and

Another v. Bombay Gas Co. Ltd. and others reported in (2003) 6 SCC

107. He also submitted that the appellants illegally continued to

occupy the said premises, and therefore, they are liable to vacate the

suit premises immediately.

 

12.In order to examine the contentions raised by learned counsel for

the parties, it will be convenient to set out the provisions of Section

630 of the Companies Act, 1956, which read as under:
“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;
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he shall, on the complaint of the company or any creditor
or contributory thereof, be punishable with fine which may
extend to ten 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 wrongfully obtained
or wrongfully withheld or knowingly misapplied, or in
default, to suffer imprisonment for a term which may
extend to two years.”

 

13.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 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. From the bare reading of the section,

it is apparent that sub-section (1) is in two parts. Clauses (a) and (b)

of sub-section (1) create two different and separate offences. Clause

(a) contemplates a situation wherein an officer or employee of the

company wrongfully obtains possession of any property of the

company during the course of his employment to which he is not

entitled whereas clause (b) contemplates a case where an officer or

employee of the company having any property of the company in his

possession, wrongfully withholds it or knowingly applies it to

purposes other than those expressed or directed in the articles and

authorised by the company. Under this provision, it may be that an
Page 8 of 19
officer or an employee may have lawfully obtained possession of any

property during the course of his employment, still it is an offence if

he wrongfully withholds it after the termination of his employment.

Clause (b) also makes it an offence, if any officer or employee of the

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. In terms of sub-

section (2) the court is empowered 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 appropriate for delivery of the possession of

the property of the company and to impose a sentence of

imprisonment when there is non-compliance with the order of the

court regarding delivery or refund of the property of the company.

 

14. In Abhilash Vinodkumar Jain v. Cox & Kings (India) Ltd., (1995) 3

SCC 732 this Court had occasion to deal with scope and ambit of the

provisions of Section 630 of the Act. This Court analyzed Section 630

and drew a logical deduction in para 13, which is as follows:

“13. The logical deduction of the analysis of Section 630 of
the Act in the light of the law laid down by this Court is that:

(i) Clause (a) of the section is self-contained and
independent of clause (b) with the capacity of creating
Page 9 of 19
penal liability embracing the case of an existing
employee or an officer of the company and includes a
past officer or a past employee of the company;
(ii)Clause (b) is equally independent and distinct from
clause (a) as regards penal consequences and it
squarely applies to the cases of past employees or
officers;
(iii)the entitlement of the officer or employee to the
allotted property of the company is contingent upon
the right and capacity of the officer or the employee
by virtue of his employment to continue in possession
of the property belonging to the company, under
authority of the company and the duration of such
right is coterminous with his/her employment.

 

In para 14 this Court further laid down the Scope and ambit of Section

630:

14. Thus, inescapably it follows that the capacity, right to
possession and the duration of occupation are all features
which are integrally blended with the employment, and the
capacity and the corresponding rights are extinguished with
the cessation of employment and an obligation arises to
hand over the allotted property back to the company. Where
the property of the company is held back whether by the
employee, past employee or anyone claiming under them,
the retained possession would amount to wrongful
withholding of the property of the company actionable under
Section 630 of the Act. The argument of the learned counsel
for the appellants that since the provisions of Section 630 of
the Act are penal in nature the same must be strictly
construed and, the parties which have not been expressly
included by the legislature in Section 630(1) of the Act,
cannot by any interpretative extension be included in the
said provision, ignores the situation that by a deeming
fiction, the legal representatives or heirs of a past employee
or officer, in occupation of the property of the company,
would continue to enjoy the personality and status of the
employee or the officer only. An argument quite similar in
Page 10 of 19
nature was raised in Baldev Krishna Sahi case (1987) 4 SCC
361 also while resisting the extension of the provisions of
Section 630 of the Act to the past employee or past officer
and rejecting the same, this Court opined: (SCC pp. 365-
66, para 6)
“The first and foremost argument of learned counsel
for the petitioner is that the provision contained in
Section 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 clause (b) of sub-
section (1) for the contention that clause (b) does not
stand by itself but is interconnected with clause (b)
(sic) and therefore both clauses (a) and (b) must be
read together. In essence, the submission is that sub-
section (1) of Section 630 of the Act makes it an
offence where any officer or employee of a company
wrongfully withholds possession of 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 Section
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 Sections 538 and 545. The entire
argument of the learned counsel is based upon the
judgment of the High Court of Calcutta in Amritlal
Chum case [(1987) 61 Comp Cas 211 (Cal)]. 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-section (1) of Section
630 of the Act which defeats the very purpose and
object with which it had been introduced.”
We are in respectful agreement with the above view and are
of the opinion that the legal representatives or the heirs of
the deceased employee or officer would squarely fall within
the ambit of Section 630 of the Act. To exclude them by
Page 11 of 19
giving a restrictive interpretation to the provisions would
defeat the very object of the provision which declares the
wrongful withholding of the property of the company to be
an offence. It is immaterial whether the wrongful
withholding is done by the employee or the officer or the
past employee or the past officer or the heirs of the
deceased employee or the officer or anyone claiming their
right of occupancy under such an employee or an officer. It
cannot be ignored that the legal heirs or representatives in
possession of the property had acquired the right of
occupancy in the property of the company, by virtue of
being family members of the employee or the officer during
the employment of the officer or the employee and not on
any independent account. They, therefore, derive their
colour and content from the employee or the officer only
and have no independent or personal right to hold on to the
property of the company. Once the right of the employee or
the officer to retain the possession of the property, either on
account of termination of services, retirement, resignation
or death, gets extinguished, they (persons in occupation)
are under an obligation to return the property back to the
company and on their failure to do so, they render
themselves liable to be dealt with under Section 630 of the
Act for retrieval of the possession of the property.
15. The ratio of Abhilash Vinodkumar Jain (supra) was reiterated by

another larger bench in Lalita Jalan (supra), wherein it laid down the

main ingredients of Section 630 in para 6 and 7, the same are

extracted hereunder:
“6. The question which requires consideration is whether
the appellants, having not vacated the flat after the death of
Shri N.K. Jalan to whom it was allotted in his capacity as
director of the company, come within the ambit of Section
630 of the Act. The main ingredient of the section is
wrongful withholding of the property of the company or
knowingly applying it to purposes other than those
expressed or directed in the articles and authorised by the
Page 12 of 19
Act. The dictionary meaning of the word “withholding” is to
hold back; to keep back; to restrain or decline to grant. The
holding back or keeping back is not an isolated act but is a
continuous process by which the property is not returned or
restored to the company and the company is deprived of its
possession. If the officer or employee of the company does
any such act by which the property given to him is
wrongfully withheld and is not restored back to the
company, it will clearly amount to an offence within the
meaning of Section 630 of the Act. The object of enacting
the section is that the property of the company is preserved
and is not used for purposes other than those expressed or
directed in the articles of association of the company or as
authorised by the provisions of the Act. On a literal
interpretation of Section 630 of the Act the wrongful
withholding of the property of the company by a person who
has ceased to be an officer or employee thereof may not
come within the ambit of the provision as he is no longer an
officer or employee of the company. In Baldev Krishna Sahi
v. Shipping Corpn. of India Ltd. (1987) 4 SCC 361 the Court
was called upon to consider the question whether the words
“officer or employee” existing in sub-section (1) of Section
630 should be interpreted to mean not only the present
officers and employees of the company but also to include
past officers and employees of the company. It was held
that a narrow construction should not be placed upon sub-
section (1) of Section 630, which would defeat the very
purpose and object with which it had been introduced but
should be so construed so as to make it effective and
operative. The Court held as under in para 7 of the Report:
(SCC p. 366)

“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.”

7. The Court went on to observe that it is only the
present officers and employees who can secure possession
of any property of a company and it is possible for such an
officer or employee to wrongfully take away possession of

 

Page 13 of 19
any such property after termination of his employment.
Therefore, the function of clause (a) though it primarily
refers to the existing officers and employees, is to take
within its fold an officer or employee who may have
wrongfully obtained possession of any such property during
the course of his employment, but wrongfully withholds it
after the termination of his employment. It was further held
that Section 630 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 and that it is the wrongful withholding of the
property of the company after the termination of the
employment, which is an offence under Section 630(1)(b) of
the Act”.
This Court further laid down in paras 22 and 23 as follows:

“22. The view expressed in J.K. (Bombay) Ltd. (2001) 2
SCC 700 runs counter to the view expressed in Abhilash
Vinodkumar Jain (1995) 3 SCC 732 wherein it has been
clearly held that the object of Section 630 of the Act is to
retrieve the property of the company where wrongful
holding of the property is done by an employee, present or
past, or heirs of the deceased employee or officer or anyone
claiming the occupancy through such employee or officer.
The view expressed in Abhilash Vinodkumar Jain (1995) 3
SCC 732 clearly subserves the object of the Act which is to
the effect of recovering the possession of the property
belonging to the company. If it is held that other members
of the family of the employee or officer or any person not
connected with the family who came into possession through
such employee would not be covered by Section 630 of the
Act, such a view will defeat the quick and expeditious
remedy provided therein. The basic objection to this view is
that the aforesaid provision contained in Section 630 of the
Act is penal in nature and must be strictly construed and
therefore the actual words used should not be given any
expansive meaning. A provision of this nature is for the
purpose of recovery of the property and if, in spite of
demand or subsequent order of the court, the possession of
the property is not returned to the company, the question of
imposing penalty will arise. Similar provisions are available
even under the Code of Civil Procedure. In execution of a
decree for recovery of money or enforcement of an
injunction, the judgment-debtor can be committed to a
prison. Such a provision by itself will not convert the civil
proceeding into a criminal one. Even assuming that the said
provision is criminal in nature, the penalty will be attracted
in the event of not complying with the demand of the
recovery of the possession or pursuant to an order made
thereof. The possession of the property by an employee or

 

Page 14 of 19
anyone claiming through him of such property is unlawful
and recovery of the same on the pain of being committed to
a prison or payment of fine cannot be stated to be
unreasonable or irrational or unfair so as to attract the
rigour of Article 21 of the Constitution. If the object of the
provision of Section 630 of the Act is borne in mind, the
expansive meaning given to the expression “employee or
anyone claiming through him” will not be unrelated to the
object of the provision nor is it so far fetched as to become
unconstitutional. Therefore, with profound respects the view
expressed in J.K. (Bombay) Ltd. (2001) 2 SCC 700 in our
opinion is not correct and the view expressed in Abhilash
Vinodkumar Jain (1995) 3 SCC 732 is justified and should be
accepted in interpreting the provision of Section 630 of the
Act.

23. If an erstwhile or former employee is prosecuted under
Section 630 of the Act on account of the fact that he has not
vacated the premises and continues to remain in occupation
of the same even after termination of his employment, in
normal circumstances it may not be very proper to
prosecute his wife and dependent children also as they are
bound to stay with him in the same premises. The position
will be different where the erstwhile or former employee is
himself not in occupation of the premises either on account
of the fact that he is dead or he is living elsewhere. In such
cases all those who have come in possession of the
premises with the express or implied consent of the
employee and have not vacated the premises would be
withholding the delivery of the property to the company and,
therefore, they are liable to be prosecuted under Section
630 of the Act. This will include anyone else who has been
inducted in possession of the property by such persons who
continue to withhold the possession of the premises as such
person is equally responsible for withholding and non-
delivery of the property of the company”.
16. The capacity, right to possession and the duration of occupation are

all features which are integrally blended with the employment. Once

the right of the employee or the officer to retain the possession of

the property, either on account of termination of services,

retirement, resignation or death, gets extinguished, they (persons in
Page 15 of 19
occupation) are under an obligation to return the property back to

the company and on their failure to do so, they render themselves

liable to be dealt with under Section 630 of the Act for retrieval of

the possession of the property.

 

17. The ratio laid down in the above said two cases makes it explicitly

clear that Section 630 of the Act will cover within its ambit not only

the employee or officer but also the past employee or the past officer

or the heirs of the deceased employee or anyone claiming under

them in possession of the property. The legal heirs or representatives

in possession of the property acquire the right of occupancy in the

property of the company, by virtue of being family members of the

employee or the officer during the employment of the employee or

the officer and not on any independent account. They, therefore,

derive their colour and content from the employee or the officer only

and have no independent or personal right to hold on to the property

of the company.

 

18. The case in hand is the one which falls under the first part of clause

(b) of sub-section (1) of Section 630. The suit premises was allotted

to Mr. C. B. Saran, the predecessor-in-interest of the appellants, in

his capacity as a Managing Director of the respondent company. The
Page 16 of 19
appellants herein had no direct relationship with the respondent

company. Both of them came in possession of the suit premises

through the original allottee of the said premises, namely, Mr. C. B.

Saran, who has since died. The company has every right and

jurisdiction to preserve its property and to see that the same is not

used for purposes other than the one expressed or directed in the

articles of association of the company. On a careful reading of the

ratio of the decisions in Abhilash Vinodkumar Jain (supra) and Lalita

Jalan (supra), it is explicitly clear that they are squarely applicable to

facts of the present case. When the legal representatives of the

original allottee withhold the property wrongfully the company is

entitled to invoke the provisions of Section 630 of the Act so as to

retrieve the property being withheld wrongfully. The above quoted

decisions have also laid down that all those who have come in

possession of the premises with the express or implied consent of the

employee and have not vacated the premises would be withholding

the delivery of the property to the company and, therefore, they are

liable to be prosecuted under Section 630 of the Act as is done in the

present case.

 

19. We may also mention that the averment of the learned senior

counsel appearing for the appellants that the proceedings under
Page 17 of 19
Section 630 should have been stayed as the civil suit was pending, is

without any merit in the light of the decision of this Court in Atul

Mathur v. Atul Kalra, reported in (1989) 4 SCC 514, wherein it was

held that stay of proceedings by the criminal court under Section 630

of the Act, whenever a suit has been filed would not only lead to

miscarriage of justice but also render ineffective the salutary

provisions of Section 630. the said observations are extracted herein

below:
“16………………..Merely because Respondent 1 had
schemingly filed a suit before tendering his resignation, it
can never be said that the civil court was in seisin of a bona
fide dispute between the parties and as such the criminal
court should have stayed its hands when the company filed
a complaint under Section 630. If a view is mechanically
taken that whenever a suit has been filed before a complaint
is laid under Section 630, the criminal court should not
proceed with the complaint, it would not only lead to
miscarriage of justice but also render ineffective the salutary
provisions of Section 630.”

 

20. Considering the facts and circumstances of the present case, we hold

that the respondent company was within its jurisdiction to get the

suit premises vacated under the provisions of Section 630 of the Act.

We also hold that the learned courts below were justified in arriving

at a finding that the provisions of Section 630 of the Act are

applicable to the facts and circumstances of the present case.

Consequently the courts below also acted within their power and

 

Page 18 of 19
jurisdiction in directing for vacation of the suit premises by the

appellants. While upholding the said order of the courts below, we

however observe that the proceedings were initiated in the Small

Causes Court by filing a suit which is pending as of now. There was

an interim order passed in the said suit directing for maintenance of

status quo. Since we have held that the provisions of Section 630 of

the Act are applicable to the present case, we hold that the directions

of the court below in this case would be implemented subject to the

condition that if the aforesaid suit is decided in favour of the

appellants, the appellants shall be entitled to a order of restitution, if

so directed, in accordance with law and that such an order shall be

given effect to in accordance with law.

 

21.In terms of the aforesaid observations and directions, the present

appeal is dismissed.

………………………..J.
[S.B. Sinha]

…………………………J.
[Dr. Mukundakam
Sharma]

New Delhi
February 13, 2009
Page 19 of 19

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