KANCHANLAL HIRALAL NANAVATI Vs. R PRABHU

JUDGEMENT

(1.) These three petitions under s. 482, Cr. PC, are filed by accused 1 to 6 in C. C. No. 250 of 1979, on the file of the Judicial First Class Magistrate, Coimbatore, for quashing the proceedings in the said criminal case. Criminal M. P. No. 1785 of 1979 is filed by accused 5 and 6, Crl. M. P. No. 1881 of 1979, by accused 1 and 2 and Crl. M. P. No. 2074 of 1979 is filed by the third accused. Common arguments are advanced on behalf of the petitioners in the three petitions and since common question of law is involved in these cases, a common order is pronounced. The first respondent in Crl. M.P. No. 2074 of 1979, who is the only respondent in the other two petitions, Crl. M.P. Nos. 1785 and 1881 of 1979 (hereinafter referred to as "the complainant"), has filed a private complaint against the eighth accused complaining of commission of offences under ss. 108B(6), 108F(1) and 108F(2) of the Companies Act, 1956. Six out of the eight accused are the petitioners herein. The gist of the private complaint of the complainant is as follows : The complainant is a shareholder of M/s. Radhakrishna Mills Ltd. Coimbatore (seventh accused), hereinafter referred to as "the company", which is a public limited liability company. Besides being a shareholder, the complainant is also a director of the seventh accused-company. The first accused, Venkataswamy Naidu, is a shareholder and director of the company and the second and third accused who are the sons of the first accused, are also shareholders and directors of the said company. Two concerns, namely, Ramakrishna Industrial and Jayalakshmi Mills, of whom accused 1 to 3 are directors, held 37, 048 shares and they pledged their shares to M/s. Vysya Bank Ltd. (eighth accused) and obtained loans on the security of the shares. Thereupon, Vysya Bank Ltd. took actual possession of the said shares in its own name and the shares were transferred in its name in the registers of Radhakrishna Mills. It is then stated that accused 1 to 3 who have interest in several textile mills wanted to strengthen their hands by purchasing as many shares as possible, and with this object, the accused conspired together and got transfer of the shares by illegal means by committing offences under ss. 108B(6), 108F(1) and 108F(2) of the Companies Act, 1956, 1956. In that process, the fourth accused, Venkatachalapathy Shetty, who is the Divisional Manager of the eighth accused--Vysya Bank, Coimbatore, transferred the pledged shares to the names of accused 5 and 6, who are stock brokers. The loans were paid on July 3, 1978. The eighth accused, Vysya Bank, has effected transfer of the shares in the names of accused 5 and 6, who are close associates of accused 1 to 3. No intimation was given to the Central Govt. of the proposal to transfer the shares as required under s. 108B(1) of the Companies Act, 1956 and, therefore, the eighth accused, Vysya Bank, which has effected the transfer is liable to be punished under s. 108B(6) of the Companies Act, 1956.The first accused, who is a director of the company (seventh accused) convened a board meeting of the directors and, in spite of the objections raised by the complainant herein, transferred the shares and allowed voting rights to be exercised in respect of the shares by the purchasers, namely, accused 5 and 6. Thus, the seventh accused-company has violated the provisions of s. 108F(2) of the Companies Act, 1956 and the first accused as the chairman of the meeting deliberately allowed such violation. Accused 2 and 3, who are the sons of the first accused, aided and abetted the commission of the offence by the first accused. The eighth accused, Vysya Bank, has also committed an offence under s. 108B(2) by contravening the provisions of the Companies Act, 1956. With these pleas, the complainant, R. Prabhu, the Private Complaint before the Judicial First Class Magistrate, Coimbatore, and it was taken on file. As already stated, these three sets of cases have been filed by six out of the eighth accused under s. 482, Cr. PC, for quashing the proceedings on the ground that the prosecution is wholly illegal and an abuse of the process of the court. In this connection, it may also be stated that the purchaser of these shares, namely, accused 5 and 6, who are stock brothers of Bombay, have laid a complaint to the police against the present complainant, R. Prabhu and others, for having allegedly committed offences, under s. 102B (sic) and 477, IPC. The police charge-sheeted the said persons in C. C. No. 737 of 1979, on the file of the very same court, viz., Judicial First Class Magistrate, Coimbatore, and the first respondent herein has filed a petition, Crl. M.P. No. 4594 of 1979, under s. 482, Cr. PC, for quashing the said prosecution. That matter is also disposed of today separately.Mr. V. P. Raman, learned senior counsel for the petitioners in Crl. M.P. No. 2074 of 1979, has raised several points and urged that the prosecution by this private complainant is wholly untenable in law, that the complainant has no locus standi to maintain the complaint and that the court below had no material to take the said complaint on file. I shall take up the points one by one. It was argued on behalf of the petitioners that it was the Vysya Bank Ltd. (eighth accused), a scheduled bank, which has actually sold the shares in exercise of its rights and that the other accused have no part in the same. As already stated, the gist of the charge in the private complaint is that the eighth accused, Vysya Bank, has violated the provisions of s. 108B(1) of the Companies Act, 1956, which recites that every "body corporate"(underlining by me) shall, before transferring its shares in excess of 10 per cent. of the value of the subscribed equity share capital of the company, give to the Central Govt. an intimation of its proposal to transfer such shares and every such intimation shall include a statement as to the particulars of the share proposed to be transferred, the name and address of the person to whom the share is proposed to be transferred. Any violation of s. 108B(1) is punishable under s. 108B(6)(a) of the Act. The vital point for consideration is whether such a sale of shares by a scheduled bank (eighth accused in this case) is prohibited or controlled by s. 108B of the Companies Act, 1956. It was strenuously contended on behalf of the petitioners that s. 108B(1) applies only to a "body corporate" and not to a "banking company". In other words, the contention is that a "banking company" is different from a "body corporate" or "corporation". This argument is well founded if we see the definitions under s. 2 clause (5) and clause (7) of the Companies Act, 1956. Section 2(5) defines "banking company" as having the same meaning as in the Banking Regulation Act, 1949, which run thus "banking company" means any company which runs thus : "banking company" means any company which transacts the business of banking in India ". Section 2(7) of the Companies Act, 1956 defines a "body corporate" or "corporation" as including a company incorporated outside India, but does not include a corporation sole, a co-operative society, etc. The definitions of the two terms "banking company" and "body corporate" are distinct and separate.Now, reverting to the language used in s. 108B of the Companies Act, 1956 which restricts transfer of shares by a "body corporate", Mr. V.P. Raman argued that s. 108B will not apply to banking companies and that the term "body corporate" cannot be read so as to include a banking company also. There is no difficulty in accepting this argument in view of the separate definition of the term "banking company" as distinguished from "body corporate". In other words, if there is no separate definition of the term "banking company" in the Companies Act, 1956, it may be permissible to read the term "body corporate" as including a "banking company" as well. The Companies Act, 1956 has made a distinction between a "banking company" and "body corporate" and as s. 108B of the Companies Act, 1956 stands, the prohibition or restriction on the transfers can relate only to transfer by a body corporate and not by a banking company. In this case, the transfer was by the eighth accused, Vysya Bank, which is a banking company under the control of the Reserve Bank and, therefore, s. 108B is not applicable to it. The next argument raised by Mr. V. P. Raman, on behalf of the petitioners is this : The object and the effect of s. 108B have to be borne in mind in the case of prosecution in a criminal court against a scheduled bank, its officer and its clients. Section 108B of the Companies Act, 1956 contemplates intimation to the Central Govt. of the proposal to transfer shares so that the Central Govt. may take up follow-up action under s. 108B(2), if it is satisfied that as a result of the transfer of the shares of a company a change in the composition of the board of directors of the company is likely to take place and that such change is prejudicial to the interest of the company or to the public interest. In other words, the marginal note of s. 108B describes it as "restriction on the transfer". A close reading of the various provisions of s. 108B with its sub-clauses will indicate that the object of this section is to see that the stability and the identity of the company is maintained without any interference by parties with monopolistic tendencies or propensities. Obviously, the banking company in this case (eighth accused), which is a scheduled bank under the control of the Reserve Bank, cannot be expected to have such a motive, and it is presumably because of this, there are separate definitions for the term "body corporate" and "banking company". Thus, as the Act itself contemplates, a distinction has been made between a "body corporate" and a "banking company".The question can also be approached from another angle. Section 108 of the Companies Act, 1956 is only for restriction on the transfer of shares with a view to prevent monopolies as can be clearly seen from s. 108B(2) which enables the Central Government not to permit such transfers. Section 108D(1) and (2) deals with powers of the Central Govt. to direct the companies not to give effect to the transfer and even goes to the extent of saying that the shares so transferred shall stand re-transferred to the person from whom it was acquired. It is not a mere procedure as contended by the complainant but it is restrictive in character and goes to the root of the matter. Therefore, s. 108B does not bear the construction put forward by the complainant. The next point urged on behalf of the petitioners is that the Vysya Bank (eighth accused) has not at all committed any offence in selling the pledged shares to third parties, and for this contention reliance is placed on the powers of the "banking company" under s. 6 of the Banking Regulation Act, 1949 * 6(1). In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely :--....... (f) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims (g) acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security ......(n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company. "Thus, under the above provisions of the Banking Regulation Act, the banking company has got unqualified powers for doing all things as are incidental or conducive to promotion or advancement of the business of the company. It may be recalled that Vysya Batik (eighth accused) has merely dealt with the shares pledged to it by the borrower company (seventh accused) as security for the loan. That apart, s. 21 of the Banking Regulation Act deals with the powers of the Reserve Bank to control advances by banking companies. It is noticed that on a reading of this section it is the Reserve Bank which has to control the advances made by banking companies and that it is a part of the business of the banking company to deal with the security for any loans as provided for in the said Act. Thus, the aforesaid provisions of the Banking Regulation Act are repugnant to and are inconsistent with s. 108B of the Companies Act, 1956. In selling the pledged shares, the eighth accused, Vysya bank, has not done anything irregular nor can it be said to have committed an offence under s. 108B(6). On the same reasoning, no offence can be held to have been committed by one or the other of the accused under s. 108F(1) and s. 108F(2) of the Companies Act, 1956, since it is the duty of the Reserve Bank to control the banking company if deemed fit and necessary. The result is, on the facts of the case as set out by the complainant, they do not constitute any offence under the Companies Act, 1956, and the complaint in a criminal court by a private individual, though he may be a shareholder, has to be rejected as unsustainable. Of course, s. 621 of the Companies Act, 1956 recites that no court shall take cognizance of any offence against the Act which is alleged to have been committed by any company or officer thereof, except on the complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorised by the Central Government in that behalf. Though s. 621 says that the offences are cognizable on a complaint by a shareholder as well, the said provision has to be read in the background and the context in which the alleged offence is said to have taken place. Matters of public importance are to be determined only by the Government or by the RBI which is the controlling authority of the scheduled banks. There is nothing to indicate that either the Central Govt. or the Reserve Bank has taken any action about the sale of the shares lawfully pledged to the bank (eighth accused). Nor is there anything to indicate that the transfer of shares would effect a change in the composition of the board of directors which would be prejudicial to the public interest or to the interest of the company. Viewed in this light, I am of opinion that the court below has committed an error in entertaining this private complaint. If the failure to inform the Central Govt. of the proposed transfer of shares is an offence under s. 108B of the Companies Act, 1956, then it is the Central Government that should lay the complaint and not a private individual, between whom and the accused there is no love lost. Actually, this is a case and counter between two rival groups. As pointed out by Mr. V. P. Raman, the object is only to see that the Central Govt. has the occasion or opportunity to decide whether the transfer has the evil consequences sought to be suppressed.That the private complaint in this case is not maintainable is also borne out by yet another factor. Even assuming for argument's sake that s. 108B of the Companies Act, 1956 is held to be attracted in this case, it is clear that this section is repugnant to s. 6(1)(f), (g) and (n) of the Banking Regulation Act. Section 2 of the Banking Regulation Act, 1949, reads that" * the provisions of this Act shall be in addition to, and not, save as herereinafter expressly provided, in derogation of the Companies Act, 1956, 1956, or any other law for the time being in force ". Thus, s. 2 should be read along with s. 616 of the Companies Act, 1956, which runs as follows : (Sub-clause (b) of s. 616 is relevant) :" * 616. The provisions of this Act shall apply--... (b) to banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Companies Act, 1956, 1949 ". A reading of the relevant sections of the two Acts, namely, s. 6 of the Banking Regulation Act and s. 616 of the Companies Act, 1956, makes it clear that s. 616(b) is inconsistent with the provisions of s. 6 of the Banking Regulation Act. Section 6(1)(f), (g) and (n) of the Banking Regulation Act confers an unrestricted power on a banking company to realise its dues by sale of the pledged shares. The sale by the bank was done openly and lawfully through a reputed broker and in enforcement of security, and that too, with the consent of the borrowers. I am, therefore, of the view that this sale and consequent transfer do not come within the purview of s. 108B and, therefore, no criminal offence is disclosed or made out in the complaint. The result of my discussion is that s. 108B of the Companies Act, 1956 is not attracted in view of the specific provisions under s. 6(1)(f), (g) and (n) of the Banking Regulation Act. Even assuming for argument's sake that s. 108B is held to be attracted in this case, it is repugnant to the aforesaid provisions of the Banking Regulation Act, and, therefore, the provisions of the Banking Regulation Act will prevail, since the provisions of the Companies Act, 1956 (s. 616) will apply to banking companies except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949. Thus, s. 2 of the Banking Regulation Act should be read along with s. 616 of the Companies Act, 1956.The result is, no offence has been disclosed or committed in this case put forward by the complainant, and, therefore, the prosecution of the petitioners and the other accused in C.C. No. 250/79 is not sustainable in law and the prosecution will result in miscarriage of justice. Mr. V. P. Raman, learned senior counsel for the petitioners in Crl. M.P. No. 2074 of 1979, also raised yet another point that the provisions of s. 108B(6)(a) and (b) are unconstitutional as offending art. 14 of the Constitution of India. But, it is unnecessary to deal with that point for the purpose of disposing of these petitions under s. 482, Cr. PC. It is important to note that, in these petitions for quashing, the petitioners in Crl. M.P. No. 2074 of 1979 have not only impleaded the complainant as the first respondent, but also the State Government, the Union of India represented by the Secretary to Government, Ministry of Law and Justice and Company Affairs, New Delhi, and the RBI, represented by its Governor at Bombay, who are respondents Nos. 2 to 4, respectively. But, respondents Nos. 3 and 4 have not opposed this petition for quashing nor filed any counter-affidavits. For all these reasons, I am of opinion that the prosecution in C.C. No. 250 of 1979, on the file of the court of the Judicial First Class Magistrate, Coimbatore, is unsustainable in law and, therefore, this court has to interfere by quashing the proceedings in order to secure the ends of justice. The petitions are allowed and the proceedings in C.C. No. 250 of 1979, on the file of the court of the Judicial First Class Magistrate, Coimbatore, are hereby quashed.