Delhi High Court
In The Matter Of Iyogi Technical ... vs Unknown on 15 June, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved On: 4th June, 2020
Pronounced on: 15th June, 2020
+ C.A. No. 221/2020 in CO. APPL.(M)135/2016
IYOGI TECHNICAL SERVICES
PRIVATE LIMITED ... Petitioner
Through: Mr. Gaurav Duggal and Ms.
Aakansha Kaul, Advocates.
Mr. Rohit Kumar Aggarwal and
Ms. Gunjan, Advs. for Non-
Applicants/Respondents.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
% JUDGMENT
15.06.2020
1. This application, under Rules 6 and 9 of the Company (Courts)
Rules, 1959, has been preferred by iYogi Technical Services Pvt. Ltd.
(the applicant in Company Application (M) 135/2016), seeking ad
interim stay of the proceedings, against the applicant, consequent on
complaint, dated 15th February, 2019, by the National Skill
Development Corporation (NSDC), to the Economic Offences Wing
(EOW). Pursuant to the said complaint, the EOW issued a notice,
dated 23rd April, 2019, to the applicant, calling on the applicant to
appear, before the EOW. The applicant contends that it is in the
process of revival and that, therefore, Section 391 (6) of the
Companies Act, 1956 (hereinafter referred to as "the Act") justifies
CO. APPL. (M) 135/2016 Page 1 of 34
stay of proceedings, against it, consequent on the aforesaid complaint,
dated 15th February, 2019, of NSDC, pending culmination of the
revival proceedings.
2. NSDC essentially contends, per contra, that the proceedings, of
which stay is being sought by the applicant, are criminal proceedings,
which cannot be stayed under Section 391 (6) of the Act, in view of
the law laid down by a Division Bench of this Court in Krishna
Texport Industries Ltd v. D.C.M. Ltd1.
3. The issue in controversy having thus been set out in conspectus,
I proceed to allude, in somewhat greater detail, to the facts, leading to
the filing of the present application.
Facts
4. Co. Appl. (M) 135/2016 was filed, by the applicant-Company
iYogi Technical Services Pvt. Ltd., as a first motion application, under
Section 391 of the Act, in order to obtain the sanction of this Court, to
a Scheme of Arrangement, whereby the applicant could defray its
debts to its creditors. Along with the petition, the applicant also
preferred C.A. 3677/2016, for restraining the creditors, of the
applicant, from taking any coercive action against the applicant,
pending implementation of the proposed revival scheme.
1
2008 (104) DRJ 101 (DB)
CO. APPL. (M) 135/2016 Page 2 of 34
5. Notice was issued, in C. A. 3677/2016, by this Court, on 25th
October, 2016, and meetings of the secured creditors, unsecured
creditors, shareholders and employees, were directed to be convened
at the dates and venues intended therein, with the Chairpersons and
Alternate Chairpersons, for the meetings, being appointed by this
Court. On the applicant‟s prayer for stay, this Court was informed
that Company Petitions 899/2016 and 696/2016 had been filed,
against the applicant, to wind it up and that Suit 558/2016, under
Order XXXVII Rule 2 of the Code of Civil Procedure, 1908 was also
pending against it, before the learned Additional District Judge. This
Court directed that the proceedings, relating to these petitions, be kept
in abeyance till further orders, so that the efforts at
rehabilitation/restructuring of the applicant-Company were not
jeopardised, and the applicant was in a position to generate requisite
cash flow, so that its dues could be settled. With the said directions,
C.A. 3677/2016 was disposed of.
6. Subsequent thereto, it is not in dispute that serious efforts are
under way, to rehabilitate the applicant-Company. In the interregnum,
this Court has, vide orders dated 22nd May, 2018, 17th July, 2018, 31st
July, 2018 and 21st October, 2019, granted interim protection, to the
applicant-Company, against various proceedings, initiated against it.
Admittedly, all such proceedings were civil in nature. Protection was
granted, to the applicant, under Section 391 (6) of the Act. Section
391 dealt with the "power to compromise or make arrangements with
creditors and members", and sub-section (6), thereof, empowers the
Company Court as under:
CO. APPL. (M) 135/2016 Page 3 of 34
"(6) The Court may, at any time after an application has
been made to it under this section, stay the commencement of
continuation of any suit or proceeding against the company
on such terms as the Court thinks fit, until the application is
finally disposed of."
(Emphasis supplied)
7. At this stage, it would be appropriate to set out the sequence of
events, leading to the filing of the present application, thus:
(i) On 7th July, 2011, the Ministry of Home Affairs,
Government of India (MHA) approved a Special Industry
Initiative scheme for the state of Jammu and Kashmir, aimed at
delivering skills and higher employment to youth of Jammu and
Kashmir, and increasing their employability by imparting
special industry/Sector-specific skills. This program came to be
known as „Udaan‟. The National Skill Development
Corporation (NSDC) was retained, by the MHA, for
implementing the said scheme, whereby employment to 40,000
youth, from Jammu and Kashmir, was envisioned, over a period
of five years, in key high growth sectors.
(ii) The involvement, of the applicant, in the Udaan scheme,
commenced from Memorandum of Understanding (MoU),
dated 22nd May, 2013, entered into, between NSDC and the
applicant. Under the said MoU, the applicant was required to
identify trainable unemployed graduates, residing in Jammu
and Kashmir, between the ages of 18 and 40, and groom them
to be more employable. The MoU noted that the applicant had,
CO. APPL. (M) 135/2016 Page 4 of 34
for implementing the said project, submitted a proposal, dated
22nd February, 2013, to NSDC, for financial assistance, to the
tune of ₹ 72,69,48,000/- as a grant, to be utilised by the
applicant for meeting the project cost, in the manner set out in
Schedule III to the MoU. NSDC agreed to the proposal and,
vide the aforesaid MoU, undertook to provide up to ₹
72,69,48,000/-, as a grant, to the applicant, to be used solely for
implementing the Udaan project. The grant was to be disbursed
as per the schedule provided in Schedule IV to the MoU, and
were to be deposited in a separate and designated bank account,
maintained by the applicant. Clause 2.1 of the MoU set out the
"General Terms" thereof, and sub- clause (xiv), thereof, read
thus:
"If the Second Party fails, omits or neglects to observe
or perform or commits or allows to be committed a
breach of any of the terms, conditions, provisions or
the stipulations of this MoU or in connection with any
other Facility Agreements on its part to be observed
and performed or in case of occurrence of any Material
Adverse Effect ("Default"), then the First Party shall
give written notice to Second Party to rectify the said
default within a period of 45 days, failing which the
First Party shall be entitled to initiate appropriate legal
proceedings including suspension to access the Grant
Amount or recover the Grant Amount or to access the
Grant Amount by the Second Party and/or termination
along with damages, interests and expenses without
prejudice to any other right or remedy which the First
Party may have under this MoU or otherwise in law.
However, it is clarified that this clause shall not be
applicable in the event of First Party not releasing the
Grant Amount or part thereof not for the reasons
attributable to the Second Party, in which event, the
obligations of the Second Party under this MoU shall
remain suspended and in the event First Party is unable
to release the Grant Amount or part thereof within
CO. APPL. (M) 135/2016 Page 5 of 34
ninety (90) days from the date of suspension, both
Parties shall mutually agree to terminate this MoU on
such terms which as may be mutually agreed."
The Utilisation Certificate was required to be submitted, by the
applicant, in the Form prescribed in Schedule V to the MoU.
(iii) Sub- clause (xiii) of Clause 2.1 of the MoU entitled the
applicant to reimbursement, at the rate of ₹ 50,000/-, per
student/participant with the applicant who, obtained successful
placement within six months of completion of training and,
thereafter, completed a minimum of 90 days‟ continuous full-
time employment. The present application invites attention to
an e-mail, dated 23rd July, 2015, from the applicant-Company to
NSDC, claiming reimbursement, under Clause 2.1 (xiii) of the
MoU, at the rate of ₹ 50,000/-, per student, in respect of 447
students who had completed 90 days full-time employment
post-completion of training, with the applicant.
(iv) The spate of communications which, ultimately, has
necessitated the filing of the present application by the
applicant-Company, commenced, essentially, with a letter,
dated 30th January, 2018, drafted in the form of a show cause
notice, addressed to the applicant by NSDC. The said "show
cause notice" alleged non-compliance, by the applicant, with
the requirement of submission of utilisation reports, evidencing
utilisation of the grant provided by NSDC under the Udaan
scheme, within 15 days of the close of the financial year and,
CO. APPL. (M) 135/2016 Page 6 of 34
accordingly, called upon the applicant to show cause "as to why
the above said mandatory condition of submission utilisation
reports has not complied with and why the disbursed Grant
amount should not be refunded by you, Second Party, to NSDC
along with interest".
(v) The above "show cause notice", dated 30th January, 2018,
was followed by a legal notice, dated 4th April, 2018, and a
subsequent "reminder legal notice", dated 18th December, 2018,
from NSDC (through Counsel), to the applicant, with the latter
notice being a near verbatim reproduction of the former. The
legal notice alleged that, though the first tranche of the first
instalment of the Grant amount of ₹ 2,88,03,600/-, had been
disbursed, by NSDC to the applicant-Company on 11th June,
2013, the applicant had, "in complete disregard of its
contractual obligations under the MoU... failed to submit the
Utilisation Reports (both quarterly and annually) demonstrating
the utilisation of the above mentioned funds/Grant amount", to
NSDC. The legal notice went on to refer to the "show cause
notice", dated 30th January, 2018 supra, addressed to the
applicant by NSDC, which, according to the legal notice, was
returned undelivered, as were all further communications, from
NSDC to the applicant, including e-mails. It was, therefore,
alleged that Utilisation Reports, starting 2013, till the date of
the legal notice, were pending, evidencing utilisation, by the
applicant, of the Grant amount of ₹ 2,88,03,600/-, released to
the applicant by NSDC. This, Para 11 of the legal notice
CO. APPL. (M) 135/2016 Page 7 of 34
alleged, amounted to "to a breach of contract", resulting in
financial loss, to NSDC and the public exchequer, of the Grant
amount of ₹ 2,88,03,600/-. Thereafter, the concluding paras of
the legal notice went on to read thus:
"12. That in terms of Clause 2.1 (xiv) of the MoU,
iYogi is required to rectify the default stipulated in the
notice within 45 days from the date thereof. Our client
has not received any communication/revert from your
entity (i.e. iYogi) in response to the aforesaid Show
Cause Notice till date as the said Show Cause Notice
was returned undelivered to Our Client due to a change
in address of iYogi. It is submitted that as a
responsible entity and being the principal party to the
MoU, iYogi was supposed to intimate any change in
its communication addressed to Our Client; which it
has failed to do so. Accordingly, in the circumstances,
the issuance of the Show Cause Notice dated 30.01 to
2018 to the last known address of iYogi would be
deemed to be delivered to iYogi.
13. Further, as iYogi has failed to respond to the
Show Cause Notice and rectify the breach dated in that
Show Cause Notice within the remedial., Our Client is
issuing this notice under clause 2.1 (xiv) to submit the
Utilisation Report within 45 days of the receipt of this
notice failing which Our Client in exercise of the rights
stipulated in the MoU will:
a. terminate the MoU as well as the rights
of iYogi to access the Grant Amount under the
MoU; and
b. call upon iYogi to pay/return the Grant
Amount of ₹ 2,88,03,600/- (that was released
by Our Client to iYogi under the MoU) along
with interest @ 18% p.a.
The said action would also be without prejudice to the
right to initiate appropriate civil and criminal against
you (i.e. iYogi and also its officers, directors and
personnel in joint and several capacity) for your
CO. APPL. (M) 135/2016 Page 8 of 34
deliberate breach and omission of your contractual
obligations and misappropriation of public funds; all of
which shall be at your risk, cost and consequence.
This notice is being issued without prejudice to the
rights of Our Client under the MoU (including
termination of the MoU along with the right to claim
compensation) against you for loss or damage caused
to Our Client on account of breach of contract on your
part."
(vi) On 15th February, 2019, NSDC wrote to the Economic
Offence Wing (EOW), New Delhi, requesting the EOW to
register an FIR, against the applicant, under Sections 403, 405-
406, 415-417, 420, 424, 463 and 465, read with 120-B of the
Indian Penal Code, 1860 (IPC). The "prima facie facts" which,
according to the said communication, necessitated registration
of FIR, were set out, in the said communication, in which it was
alleged that "post the Grant of the said amount of ₹
2,88,03,600/-, the Accused in complete disregard of its
contractual obligations under the MoU, failed to submit the
Utilisation Reports (both quarterly and annually) demonstrating
the utilisation of the Grant amount". The communication,
thereafter, went on to allude to the Show Cause Notice dated
30th January, 2018, and the legal notice and reminder legal
notice dated 4th April, 2018 and 18th December, 2018, issued by
NSDC to the applicant. Thereafter, paras 5, 6, 8 and 9 of the
communication went on to read thus:
"5. In view of the above, the Complainant has
strong apprehension that the Accused and its Directors
have colluded and illegally siphoned off the money it
had received under the scheme Udaan and deliberately
CO. APPL. (M) 135/2016 Page 9 of 34
avoiding service of the notices sent by and on behalf of
the complainant.
6. As on date the Utilisation Reports for the period
starting from the year 2013 till date remain pending on
the part of the Accused towards utilisation of the Total
Grant amount of Rs. 2,88,03,600/- that has been
released by the Complainant to the Accused under the
MoU.
*****
8. The Complainant take strong exception to the
wilful non-performance of the obligations by the
Accused under the MoU and also the non-submission
of the quarterly and annual Utilisation Reports which
clearly demonstrates the unilateral and wilful default
by the Accused and places the strong possibility of
misappropriation and siphoning-off of the Grant
Amount i.e. Rs. 2,88,03,600/- released by the
Complainant under the Scheme Udaan.
9. In the light of the fact that the Accused has
illegally and wrongfully failed to comply with the
terms of MoU despite receiving an amount of Rs.
2,88,03,600/- released by the Complainant under the
Scheme Udaan and thereafter willfully failing to file
the Utilisation Report and the Accused and its
Directors deliberately avoiding service of notices and
other communications, the complainant has strong
apprehension of the funds by the accused and it is
requested that an FIR be registered against the
Accused and its Directors including Mr. Shatrugan
Paswan and (Mr Prashast Gautam Kachru to
investigate the matter and determine the exact quantum
of loss caused to the Complainant and hold the
responsible guilty for the offences committed under
Section 120B, 403, 405, 406, 415, 417, 420, 424, 463,
465 of the Indian Penal Code, 1860 and under any
other act/statute as you may deem fit."
(vii) Following the submission of the above complaint, by
NSDC, against the applicant, the EOW addressed
communications, dated 18th April, 2019 and 18th September,
2019, to NSDC, informing NSDC that its complaint was being
enquired into, and directing Mr. Ravi Verma, who had
addressed the complaint, to the EOW on behalf of NSDC, to
appear, in person, before the Inspector, EOW, with certain
documents, and to answer certain queries.
(viii) On 23rd April, 2019, the EOW also wrote to the
applicant, informing the applicant that the complaint, of NSDC,
was being looked into, and requesting the applicant to appear,
in person, before the Inspector of the EOW on 26th April, 2019.
(ix) On 12th June, 2019, the applicant replied to the EOW, in
response to the complaint of NSDC. It was emphasised, in the
said reply, that the applicant had, consequent to the grant of ₹
2,88,03,600/- (which was the limited amount withdrawn by the
applicant out of the total grant, by NSDC, of ₹ 72,69,48,000/-),
recruited 5000 students with great difficulty, and at high cost.
It was further stated, in the reply, that the applicant had
consistently provided feedback to the Udaan team, regarding
the deficiencies in the program, and the ineffectiveness of
communication which NSDC, in Jammu and Kashmir. Even
so, ultimately, a significant number of the students attended the
training facilities of the applicant in Gurgaon and Noida. The
applicant pointed out that it had trained the entire batch,
pursuant whereto a significant number of students had obtained
full-time employment. This, it was pointed out, was reflected
even in the web portal of the Udaan scheme, hosted by NSDC.
It was also pointed out that, on 10th August, 2015, the applicant
had submitted a part utilisation report, ₹ 1,44,60,180/-, to the
Udaan monitoring team of NSDC, duly signed by the
empanelled Chartered Accountant of NSDC. The applicant had
also submitted a claim, for reimbursement of ₹ 50,000/- (per
student), which was pending. The applicant informed NSDC
that, while it would complete the obligations of the first part of
the Udaan scheme, it was not interested in continuing with the
scheme, as involved considerable financial loss to the applicant,
and was not effective and in accordance with the objectives of
the applicant. The allegation, of NSDC, that utilisation reports
had not been submitted by the applicant was, it was pointed out,
completely false, and indicated that NSDC was not aware of its
own records. In the light of the submissions, the applicant
requested the EOW, vide the above reply dated 12th June, 2019,
to "review the complaint".
(x) Mr. Gaurav Duggal, learned counsel appearing for the
applicant, submits that all details, sought by the EOW, have
been provided by the applicant, and that the applicant is hopeful
that the proceedings would be dropped by the EOW, as, in his
submission, no case, for initiating any criminal proceedings,
could be said to arise.
(xi) Vide email dated 18th June, 2019, NSDC responded to the
email, of the applicant, dated 12th June, 2019 supra. In the
response, NSDC acknowledged that it was in receipt of the soft
copy of the Utilisation Certificate, dated 7th August, 2015,
furnished by the applicant, evidencing utilisation of an amount
of ₹ 1,44,60,180/-, out of the total grant provided by NSDC
under the Udaan scheme. However, stated the letter, the MoU,
between the applicant and NSDC, cast a "specific obligation to
furnish Original Utilisation Certificate duly certified by CAG
empanelled auditor", representing the financial assistance
utilised by the applicant. For want of the Original Utilisation
Certificate, the soft copy thereof, dated 7th August, 2015, it was
stated, could not be accepted by NSDC. The applicant was,
therefore, requested to furnish the Original Utilisation
Certificate, dated 7th August, 2015, representing utilisation of
an amount of ₹ 1,44,60,180/-, duly certified by CAG
empanelled auditor, as well as Original Utilisation Certificate
for the balance amount of ₹ 1,43,43,420/-.
(xii) On 14th April, 2020, NSDC addressed, to the applicant,
yet another email, which has provoked the filing of the present
application. The email read thus:
"Dear Mr. Tamang and Mr. Yogendra,
This is with reference to non-receipt of the original
utilisation certificates by iYogi Technical Service
Private Limited (iYogi) for utilisation of the grant
amount disbursed by NSDC under the project Udaan.
Please note that more than 6 months is elapsed from
the date last meeting had with Mr. Tamang the
authorised person of iYogi in the office of Economic
Offence Wing, New Delhi in the presence of Mr.
Yogendra, EOW officer, and the documents are yet to
be submitted by iYogi for closure of the matter.
Accordingly, requesting Mr. Yogendra to accord the
priority to this case and instruct iYogi, its Director and
authorized representative to refund the amount of grant
disbursed by NSDC and not utilised by iyogi as per the
MoU executed between the parties under the project
Udaan.
Kindly treat this email as urgent and important because
of the misuse of public funds by iYogi, its Director and
authorised representative.
Namaste.
Saurabh"
(xiii) On receiving a copy of the afore-extracted email,
dated 14th April, 2020, addressed by NSDC to the EOW,
the applicant responded, vide email dated 28th April,
2020, categorically denying all allegations of NSDC.
Castigating the email, dated 14th April, 2020, as
"maligning, disparaging, malicious", "defamatory and
derogatory", the applicant pointed out that the report,
uploaded by NSDC on its own website reflected the
number of people hired, trained and deployed by the
applicant, under the Udaan scheme, thereby belying the
allegation, of NSDC, that the applicant had not hired
anyone and had misappropriated the grant advanced to it
under the said scheme. It was also submitted that, in a
report, on the website of NSDC, which referred to the
recruitment drives conducted in Jammu and Kashmir by
Udaan partners, the first name, referenced therein, was
that of the applicant. The applicant, therefore,
categorically denied the allegation that a criminal offence
could have been committed by it, and alleged, per contra,
that NSDC was attempting to malign the reputation of the
applicant.
8. Apparently sensing that matters were getting out of hand, the
applicant has moved the present application, before this Court,
invoking Section 391 (6) of the Act, seeking interim protection
against the proceedings pending/proposed against the applicant,
consequent to the complaint, dated 15th February, 2019, and the e-
mail, dated 14th April, 2020, addressed by NSDC to the EOW.
9. While issuing notice on this application, on 29 th May, 2020, a
preliminary objection was advanced, by Mr. Rohit Aggarwal, learned
counsel for NSDC, to the effect that criminal proceedings could not be
stayed under Section 391 (6) of the Act, in view of the judgment of
the Division Bench of this Court in Krishna Texport1. I had also
expressed my view - which I maintain - that the correctness of the
allegation, of NSDC, that the applicant had contravened the
provisions of the Udaan scheme, being in seisin before the EOW, it
would not be appropriate for this Court to opine thereon, at this stage.
10. Arguments, before me were, therefore, restricted to the aspect
of whether Section 391 (6) of the Act empowered this Court to
interdict the process, set in motion by the complaint, dated 15 th
February, 2019, addressed by NSDC to the EOW.
Rival contentions
11. Arguing on behalf of the applicant, Mr. Gaurav Duggal, learned
counsel, submits that the request, by NSDC, to the EOW, to take
criminal action against his client, was merely a red herring, as there
was no justification, whatsoever, therefor. He points out that, out of
the sanctioned grant of ₹ 72,69,48,000/-, under the Udaan scheme, the
applicant had availed only ₹ 2,88,03,600/-, of which it had utilised ₹
1,44,60,180/-, and forwarded the requisite utilisation certificate to
NSDC. Mr. Duggal points out that there was no requirement, in the
MoU between the applicant and NSDC, requiring the applicant to
supply "original utilisation certificates", and submits, further, that this
requirement was cited, by NSDC, for the first time, in its e-mail dated
18th June, 2019 supra. NSDC acknowledged the fact that it was in
receipt of the utilisation certificate, dated 10 th August, 2015,
forwarded by the applicant and evidencing utilisation, by it, of an
amount of ₹ 1,44,60,180/-.
12. In any event, submits Mr. Duggal, no justification, for initiating
criminal proceedings, against his client, could be said to exist. In fact,
Clause 7.4 of the MoU, between the applicant and NSDC, provided
for a dispute resolution mechanism, which NSDC could always
invoke. That apart, Mr. Duggal points out that NSDC could join as a
creditor in the proceedings for revival of the applicant, pending before
this Court, subject to the plea of limitation, available to his client. He
points out that, consequent to orders passed by this Court, the next
meeting of employees, scheduled and unscheduled creditors of the
applicant, was to take place on 15th July, 2020. Mr. Duggal points
out, further, that, in that notices dated 4th April, 2018 supra and 18th
December, 2018 supra, addressed by NSDC to the applicant, civil
action alone was proposed, and the liability of the applicant, to which
reference was made thereon, was civil in nature.
13. The facts of Krishna Texport1, submits Mr. Duggal, were
clearly distinguishable from those of the present case. Inter alia, Mr.
Duggal points out that the petitioner, in Krishna Texport1, had availed
two civil remedies.
14. Responding to the submissions of Mr. Duggal, Mr. Rohit
Aggarwal, appearing for NSDC, places reliance on paras 26, 33 and
34 of the report in Krishna Texport1. He submits that Krishna
Texport1 was categorical in holding that civil proceedings, alone,
could be stayed under Section 391 (6) of the Act. The
communication, dated 15th February, 2019, addressed by his client to
the EOW, he submits, was analogous to information provided to the
Police regarding commission of a criminal offence. They could not,
therefore, be regarded as "civil proceedings".
15. Mr. Aggarwal also relies on Krishna Texport1 to contend that
proceedings, which the Company Court could not deal with, could not
be stayed under Section 391 (6) of the Act invites my attention, in this
context, to para 14 of the said judgment. Mr. Aggarwal presents two
alternative arguments, by contending that the cause of action, set in
motion by the complaint, addressed by NSDC to the EOW, could not
be regarded as "proceedings" and, if they were proceedings, they were
certainly not "civil proceedings" and were, if anything, criminal
proceedings, which could not be stayed under Section 391 (6) of the
Act. Reliance is placed, by Mr. Agarwal, on the definition of
"proceeding", as contained in Black‟s Law Dictionary, to which I
would be alluding later in the course of this judgment. Mr. Aggarwal
also places reliance on the judgment of the High Court of Bombay in
State of Tamil Nadu v. Uma Investments Pvt Ltd 2.
16. The prayer of the applicant was, therefore, according to Mr.
Rohit Aggarwal, misconceived, and sought a remedy which the law
did not contemplate.
17. Advancing submissions by way of rejoinder to the contentions
of Mr. Rohit Aggarwal, Mr. Duggal took me through the various
communications, between the applicant and NSDC, to reiterate his
contention that the liability of his client towards NSDC was, if at all,
purely civil in nature, unlike Krishna Texport1, which involved a
complaint, under Section 138 of the Negotiable Instruments Act, 1881
(hereinafter referred to as "the Negotiable Instruments Act"). Mr.
Duggal places reliance on para 18 of the report in Meters &
Instruments (P) Ltd v. Kanchan Mehta3, in this context. In fact,
submits Mr. Duggal, the tenor of the e-mail, dated 18th June, 2019,
from NSDC, indicated that the grievance of NSDC was purely civil in
nature. This e-mail, he submits, seriously and materially diluted the
case set up, by NSDC, in its complaint, dated 15th February, 2019, to
(1977) 47 Comp Cas 242 (Bom)
(2018) 1 SCC 560
the EOW. An alleged civil wrong was, therefore, submits Mr.
Duggal, being given a criminal colour, so as to pressurize the
applicant. Significantly, submits Mr. Duggal, the MoU, between the
applicant and NSDC, did not contain any provision for initiation of
criminal action. Mr. Duggal also placed reliance on the well-known
judgment of the Supreme Court in Lalita Kumari v. Govt. of UP4, to
contend that the criminal law was set in motion only on registration of
FIR and, prior thereto, the proceedings could not be treated as
criminal in nature. Mr. Duggal places especial reliance on para 8 of
Krishna Texport1 which, in his submission, completely demolished
the case of NSDC.
Analysis
Krishna Texport1, and its sequelae
18. It is obviously necessary, in the first instance, to analyse
Krishna Texport1, and the law enunciated therein. If Krishna
Texport1 covers the issue, the matter must rest there, as the wheel,
already forged by a Division Bench, can hardly be reinvented by me.
19. The issue before the Division Bench of this Court, in Krishna
Texport1, is thus delineated, in the very opening para of the judgment:
"A conflict of judicial review between the Bombay High
Court in the Gujarat High Court in respect of the power of the
company court u/s 391 (6) of the Companies Act, 1956
AIR 2014 SC 187; (2014) 2 SCC 1
(hereinafter referred to as the said Act) to stay criminal
proceedings has given rise to the present appeal."
(Emphasis supplied)
20. A brief allusion, to the facts, before this Court in Krishna
Texport1, may be appropriate. An Inter Corporate Deposit (ICD), of ₹
2.5 crores, was placed, by Krishna Texport Industries Ltd. (hereinafter
referred to as "KTIL"), on the respondent DCM Ltd. (hereinafter
referred to as "DCM"). The deposit was by way of two separate
cheques, of ₹ 1.25 crores each, which were duly encashed. The ICDs
were for a period of 120 days, and DCM was liable to repay the
amount before the expiry thereof, along with interest. Alleged
default, on the part of DCM, to effect such repayment, gave rise to
two sets of separate proceedings. One set of proceedings arose out of
cheques, issued by DCM, which were dishonoured on account of
paucity of funds, resulting in complaints being filed, by KTIL, under
Section 138 of the Negotiable Instruments Act, 1881. The second set
of proceedings were initiated by KTIL for winding up of DCM, which
does not really concern us. Proceedings, for quashing of the
complaint, filed by KTIL against it under Section 138 of the
Negotiable Instruments Act, were preferred, by DCM, before this
Court, but were withdrawn.
21. As a scheme, for restructuring of DCM, was under
consideration before this Court, an interim order was passed, by the
learned Company Judge, on 25th April, 2005, staying all the above
proceedings. This order was challenged, by KTIL, before this Court,
contending that criminal proceedings, initiated by KTIL against DCM
under Section 138 of the Negotiable Instruments Act, could not be
stayed by the learned Company Judge.
22. The Division Bench of this Court noticed that the High Courts
of Bombay and Gujarat had expressed conflicting views, on this issue.
The Bombay High Court, was of the opinion that the Company Court
judge could not stay proceedings before the criminal court, in exercise
of his jurisdiction under Section 391 of the Act. The Gujarat High
Court, on the other hand, opined to the contrary.
23. During the course of discussion, the Division Bench had
occasion to refer to the earlier judgment, also by a Division bench of
this Court, in D. K. Kapur v. R.B.I.5, rendered in the context of
Section 446 of the Act. Section 446(1) and (2)(a), of the Act, read
thus:
"446. Suits stayed on winding up order. -
(1) When a winding up order has been made or the
Official Liquidator has been appointed as provisional
liquidator, no suit or other legal proceeding shall be
commenced. or if pending at the date of the winding up
order, shall be proceeded with, against the company,
except by leave of the Court and subject to such terms
as the Court may impose.
(2) The Court which is winding up the company
shall, notwithstanding anything contained in any other
law for the time being, in force, have jurisdiction to
entertain, or dispose of -
2001 (58) DRJ 424 (DB) : 90 (2001) DLT 127;
(a) any suit or proceeding by or against the
company;"
24. Reading the expression "other legal proceeding", in Section
446(1), and the expression "proceeding" in Section 446(2)(a), of the
Act, ejusdem generis with the word "suit", the Division Bench held, in
D. K. Kapur5, that the "proceeding", to which reference was made, in
the said provisions, was analogous to a suit, and could not include
criminal prosecution. One of the considerations, which guided this
view, was the fact that Section 446(2)(a) required the Court, dealing
with the winding the proceedings, to entertain, or dispose of, the "suit
and the proceeding". This Court, therefore, held that the word
"proceeding" had necessarily to refer to a litigation which the
"winding up court" was empowered to entertain, and dispose of. The
same effect, it was noted, was the judgment of the Supreme Court in
Sudarsan Chits (I) Ltd v. G. Sukumaran Pillai6 and S. V. Kondaskar
v. V. M. Deshpande7.
25. Having digested the earlier applicable on the point, the Division
Bench went on, in para 23 of the report in Krishna Texport1 ¸
proceeded to hold that the object of Section 391 of the Act was "to
prevent vexatious litigation and cost on the company during the period
of time when a scheme is being propounded", which "object is not
subserved by stay of the criminal proceedings". Further, in the same
para, this Court goes on to observe that, had the intention of the
legislature been to include criminal prosecution, in Section 391 (6),
the legislature would have specifically said so. Para 26 of the report,
(1984) 4 SCC 657
AIR 1972 SC 878
thereafter, goes on to pronounce thus, in terms which are clear,
unequivocal and unambiguous:
"We are in agreement with the view that the words used in all
the aforesaid provisions of "proceedings" or "other
proceedings" must be construed ejusdem generis with the
expression „suit‟ used aforesaid and clearly implies civil
proceedings. It is only such construction which is in
conformity with the intent of the legislature introducing these
provisions in the said Act."
(Emphasis supplied)
26. Paras 32 to 34 of the report, with which the judgment
concludes, read thus:
"32. The sanctity of the proceedings u/s 138 of the NI Act
must, thus, be preserved and those proceedings must continue
as they arise out of the failure of the company's Directors to
honour the negotiable instrument duly signed by them like a
cheque. The proceedings u/s 138 of the NI Act are not for
recovery of claim of money by a creditor for which the
remedy would be by filing a civil suit.
33. It can hardly be said that the object of Section 391 (6)
of the said Act is to prevent action against the officers of the
company who may be involved in cheating, criminal breach
of trust, mis-appropriation, forgery and for that matter
dishonour of cheque. Again the provision cannot be used to
bring to an end a prosecution arising from Income Tax Act or
Foreign Exchange Control Act. The proceedings are clearly
not of a pecuniary nature involving recovery of money.
Interestingly, even the scheme stated to be approved at the
behest of the respondent company does not envisage bar to
any criminal proceedings or payment of any actual amount in
the given facts of the case as discussed at the inception of this
judgment, but only seeks to extinguish the liability of the
appellant on the ground that the respondent is liable to pay a
lesser amount, the interest not running, and the claim is
alleged to have been extinguished by payment to a third party
at the behest of the appellant for which there is no written
document.
34. We are, thus, unequivocal of the view that Section
391(6) of the said Act does not envisage either quashing or
stay of criminal cases against the company or its Directors
and, thus, the proceedings against the respondents u/s 138 of
the NI act instituted by the appellant could not have been
stayed."
(Emphasis supplied)
27. On facts, it is clear that the decision in Krishna Texport1 is not
similar to the case at hand. Krishna Texport1 involved a complaint,
filed before the competent criminal court, under Section 138 of the
Negotiable Instruments Act. There could be no manner of doubt,
therefore, that criminal proceedings actually stood instituted, in that
case. In the present case, per contra, no FIR has, as of date, been
lodged, against the applicant, by the EOW, despite the entreaties, to
that effect, by NSDC. Indeed, Mr. Gaurav Duggal would submit that
the complaint, of NSDC, and the request, to the EOW, to file FIR is
against the applicant, may, ultimately, not be entertained at all. That,
ball, so to speak, is, however, presently in the court of the EOW, and
not in this Court.
28. Krishna Texport1 was followed by another Division Bench of
this Court in R. B. I. v. C. R. B. Capital Markets Ltd 8, which went a
step further, and held thus:
"From the foregoing discussion it is clear that the quasi-
judicial orders passed by a statutory authority like SEBI
195 (2012) DLT 204
orders passed by the RBI and the income tax authorities under
special enactments cannot be set aside while sanctioning a
scheme under Section 391 of the Companies Act. It is also
clear that no stay of any criminal or income tax proceedings
can be ordered by the company court while considering an
application under Sections 391/392 of the Companies Act,
1956. Therefore, the scheme which entails a direction to
SEBI to revoke the order is passed under Section 11B of the
SEBI Act could not have been sanctioned in law. Similarly,
directions regarding "vacation of stay sine die" of all criminal
cases could not have been given by the company court."
29. That criminal proceedings, instituted under Section 138 of the
Negotiable Instruments Act, cannot be stayed under Section 391 (6) of
the Act was reiterated, by another Division Bench of this Court in
Spice Jet Ltd v. Malanpur Steel Ltd 9.
30. As the position, in law, stands today, therefore, criminal
proceedings cannot be stayed, under Section 391 (6) of the Act. "Civil
proceedings" alone can be so stayed.
When do "criminal proceedings" commence?
31. When, however, can "criminal proceedings" be said to be
instituted? Krishna Texport1 and Spice Jet Ltd9 were cases in which
criminal complaints had been filed, before the competent court, under
Section 138 of the Negotiable Instruments Act and, therefore, there
could be no doubt about the fact that "criminal proceedings" had been
instituted against the company in question and had, to employ a
colloquialism, taken off.
2013 (134) DRJ 467
32. Laxmipat Choraria v. State of Maharashtra10, analysing the
expression "criminal proceeding", as employed in Section 5 of the
Indian Oaths Act, 1873, held that the expression would have to be
understood in the manner in which it was defined in Section 132 of
the Indian Evidence Act, 1872, and would include, therefore, the
criminal trial process, and not the investigation. In R. v. Bow Street
Magistrate11, the expression "criminal proceeding" was understood to
mean the proceedings before the Court of magistrate.
33. In Lalita Kumari4, on which Mr. Aggarwal sought to rely, it is
specifically held that "the FIR is pertinent document in the criminal
law procedure of our country and its main object from the point of
view of the informant is to set the criminal law in motion and from the
point of view of the investigating authorities is to obtain information
about the alleged criminal activity so as to be able to take suitable
steps to trace and to bring to book the guilty". Re-emphasising the
point in para 38 of the report, it was held that the objective of placing
Section 154, prior to Section 156 in the Code of Criminal Procedure,
1898, was "to ensure that the recording of the first information should
be the starting point of any investigation by the police". Para 120.6 of
the report, yet again, impliedly treats reporting of the matter as the
point when criminal prosecution is initiated.
34. No FIR has, till date, admittedly, been filed, against the
applicant, by anyone, including the EOW. Applying the principles
laid down in the decisions cited hereinabove, therefore, it cannot be
AIR 1968 SC 938
(1999) 1 All ER 98 (QBD)
stated that "criminal proceedings" have been initiated against the
applicant, as yet.
Have any proceedings be initiated against the applicant, at the instance
of NSDC?
35. As a fallback argument, Mr. Aggarwal has sought to contend
that, if no "criminal proceedings" were pending against the applicant,
then, certainly, no civil proceedings can be said to pending, either. In
that case, submits Mr. Aggarwal, no proceedings, of any kind, are
pending against the applicant, at the instance of the NSDC, and the
application, under Section 391 (6) of the Act, is itself not
maintainable.
36. Both sides have placed reliance on the definition of
"proceeding", as contained in Black‟s Law Dictionary. I may
reproduce the entire definition, as contained in Black‟s Law
Dictionary, as it is, in my view, practically exhaustive, regarding the
scope and ambit of the expression "proceeding", as understood in law:
"Proceeding. In a general sense, the form and manner of
conducting juridical business before a court of judicial
officer. Regular and orderly progress in form of law,
including all possible steps in an action from its
commencement to the execution of judgment. Term refers to
administrative proceedings before agencies, tribunals,
bureaus, or the like.
An act which is done by the authority or direction of
the court, agency or tribunal, express or implied; and action
necessary to be done in order to obtain a given any; a
prescribed mode of action for carrying into effect a legal
right. All the steps of measures adopted in the prosecution or
defence of an action. Statter v. United States, C.C.A.
Alaska, 66 F. 2d 819, 822. The word may be used
synonymously with "action" or "suit" to describe the entire
course of an action at law or suit in equity from the issuance
of the writ or filing of the complaint until the entry of a final
judgment, or may be used to describe any act done by
authority of a court of law and a three-step required to be
taken in any cause by either party. The proceedings of the
suit embrace all matters that, in its process judicially.
Term "proceeding" may refer not only to a complete
remedy but also to a mere procedural step that is part of a
larger action or special proceeding. Rooney v. Vermont
Investment Corp. 10 Cal. 3d 351, 110 Cal. Rptr. 353, 365,
515 P. 2d. 297. A "proceeding" includes action and special
proceedings before a judicial tribunals as well as proceedings
pending before quasi-judicial officers and boards. State ex.
rel. Johnson v. Independents School Dist. No. 80, Wabasha
County, 260 Minn. 237, 109 N. W 2d 596, 602. In a more
particular sense, any application to a court of justice, however
made, for aid in the enforcement of rights, for relief, for
redress of injuries, for damages, or for any remedial object."
(Emphasis supplied)
37. In Babu Lal v. Hazari Lal Kishori Lal 12, it was held that the
term "proceeding", while flexible and requiring interpretation keeping
in mind the context in which it was employed, "indicates a prescribed
mode in which judicial business is conducted". In Ram Chandra
Aggarwal v. State of U.P.13, it was held thus:
"The term "proceeding" indicates something in which
business is conducted according to a prescribed mode it
would be only right to give it, a comprehensive meaning so as
to include within it all matters coming up for judicial
adjudication and not to confine it to a civil proceeding alone."
(Emphasis supplied)
(1982) 1 SCC 525
AIR 1966 SC 1888
38. In Garikapati Veeraiya v. N. Subbiah Choudhry 14, it was held
that "the legal pursuit of a remedy, suit, appeal and second appeal are
really but steps in a series of proceedings all connected by an intrinsic
unity and are to be regarded as one legal proceedings."
39. In the present case, pursuant to the complaint, dated 15 th
February, 2019, addressed by NSDC to the EOW, the record reveals
that the EOW is merely looking into the matter, for which purpose it
had called the applicant, to appear before it, vide the notice dated 23rd
April, 2019 supra. The said notice cannot even be termed a "show
cause notice", as it merely states that the complaint of NSDC was
being looked into, and requested the applicants to appear, before it, in
that regard. No action, prejudicial to the applicant, has been proposed
in the said communication. The EOW has not called upon the
applicant to show cause, with respect to any of the allegations of
NSDC, or against any action, proposed to be taken against the
applicant pursuant thereto. It is not possible for this Court, therefore,
to hold that, at this stage, any "proceeding", civil or criminal, is
pending against the applicant, as could be stayed under Section 391
(6) of the Act.
40. This view would also be in consonance with the judgment in
Krishna Texport1 which, following the earlier judgment of the
Division Bench of this Court in D. K. Kapur5, held that the word
"proceeding" had to be read ejusdem generis with the word "suit". So
read, it is apparent that a "proceeding", for the purpose of Section 391
AIR 1957 SC 540
(6), would be a proceeding before a judicial, or at least a quasi-
judicial, forum, having the trappings of a court, and cannot extend to a
mere enquiry being conducted, by the EOW, on a complaint of the
NSDC.
41. Mr. Gaurav Duggal seriously contested the very legitimacy of
the complaint, dated 15th February, 2019, addressed by NSDC to the
EOW. He pointed out that there is no provision, in the MoU, dated
22nd May, 2013, contemplating initiation of criminal proceedings
against the applicant. Mr. Duggal took me through the various
communications, between NSDC and the applicant, to bring home his
point. It was pointed out that, in para 8 of the legal notice, dated 4 th
April, 2018, addressed by NSDC (through counsel) to the applicant,
while referring to the Show Cause Notice dated 30th January, 2018
supra, addressed by NSDC to the applicant, clearly stated that the
proposal, in the said Show Cause Notice, was of refund, by the
applicant, of the disbursed grant amount, to NSDC. Para-13 of the
said legal notice, it was pointed out by Mr. Duggal, specifically stated
that the notice was being issued to the applicant "to submit the
Utilisation Report within 45 days of the receipt of this notice failing
which (NSDC) in exercise of the rights stipulated in the MoU will (a)
terminate the MoU as well as the rights of (the applicant) to access the
grant amount under the MoU; and (b) call upon (the applicant) to
pay/return the grant amount ₹ 2,88,03,600/- along with interest @
18% p.a." The subsequent legal notice, dated 18th December, 2018,
from NSDC to the applicant, it was pointed out, was in identical
terms. Mr. Duggal also referred me to the contention of the
complaint, dated 15th February, 2019, from NSDC to the EOU, which
alleged, essentially, that, by failing to submit Utilisation Reports,
demonstrating utilisation of the amount granted to it by NSDC, the
applicant had completely disregarded its contractual obligations under
the MoU. The complaint went on, in the subsequent and succeeding
paras, to recite that the Show Cause Notice, dated 30 th January, 2018,
from NSDC to the applicant, sought an explanation, from the
applicant, as to why it had failed to fulfil the mandatory condition,
under the MoU, to submit periodical Utilisation Reports, and why the
disbursed grant amount should not be refunded, by the applicant to
NSDC. The complaint, thereafter, refers to the next notice, dated 4th
April, 2018, by NSDC to the applicant, "calling upon the (applicant)
to submit the Utilisation Report within 45 days of the receipt of the
notice failing which the complainant (i.e. NSDC) would terminate the
MoU and call upon the (applicant) to return the grant amount of ₹
2,88,03,600/- along with interest @ 18% p.a." In any event, submits
Mr. Duggal, the email, dated 18th June, 2019 supra, from NSDC to the
applicant, acknowledged the fact that the soft copy of the Utilisation
Certificate, dated 7th August, 2015, evidencing utilisation, by the
applicant, of an amount of ₹ 1, 44,60,180/-, out of the total amount of
grant, extended to it by NSDC, had been received by NSDC. The
grievance of NSDC, as voiced in the said communication, was that the
applicant had not furnished the original utilisation certificate (though,
Mr. Duggal would seek to submit, no such requirement existed, under
the MoU between the applicant and NSDC, or elsewhere). The
"request", with which the said communication concluded, was "to
immediately submit the below mentioned documents to NSDC for
demonstrating the utilisation of financial assistance of total amount of
₹ 2,88,03,600/- disbursed to iYogi:
1. Original Utilisation Certificate dated 07.08.2015, for an
amount of ₹ 1,44,60,180/-, duly certified by CAG empanelled
auditor thereby certifying utilisation of the financial amount.
2. Original Utilisation Certificate for an amount of ₹
1,43,43,420 [i.e., balance of (a) total disbursed amount of ₹
2,88,03,600 less (b) UC for an amount of ₹ 1,44,60,180 sent by
email] duly certified by CAG empanelled auditor thereby
certifying utilisation of the rest of the financial assistance
disbursed to iYogi."
The email, dated 14th April, 2020 supra, addressed by NSDC to the
applicant, which provoked the filing of the present application, too,
points out Mr. Duggal, requested the EOU to "instruct iYogi, its
Director and authorised representative to refund the amount of grant
disbursed by NSDC and not utilised by iYogi as per the MoU
executed between the parties under the project Udaan."
42. These communications, contends Mr. Duggal, clearly indicate
that the grievance of NSDC, against the applicant, was only that (i) it
had not furnished the original utilisation certificate, evidencing
utilisation of ₹1,44,60,180/-, but had provided only a soft copy
thereof, and (ii) it had not provided proof of utilisation of the balance
amount of ₹1,43,43,420/-. The action contemplated, against the
applicant, by NSDC, as reflected in the afore referred
communications, was only to obtain refund of the unutilised amount
of grant. The issue, therefore, Mr. Duggal would submit, was purely
civil in nature, involving refund of money, and the allegation of
siphoning off, by the applicant, of the grant, extended to it by NSDC,
was merely made in terrorem, so as to impart, to a purely civil cause,
a criminal hue.
43. The submissions are weighty and, on the face of the material on
record, merit serious consideration. I do not, however, deem it
appropriate to express any final opinion thereon, as the complaint, of
NSDC, is presently under consideration with the EOW, which would,
doubtless, take a view thereon. In arriving at its decision, it is hoped
and trusted that the EOW would keep, in mind, the submissions,
advanced by Mr. Gaurav Duggal before this Court today. If, in fact,
the applicant is guilty of criminal misfeasance, or misappropriation, it
must, needless to say, face the consequences - as, indeed, Krishna
Texport1 also exhorts. On the other hand, if the grievance of the
NSDC, irrespective of its legitimacy, or otherwise, on facts, is purely
civil in nature, and does not disclose commission of any criminal
offence, by the applicant, the EOW would do well to ensure that the
attempts, at revival of the applicant, are not unjustifiably jeopardised.
Conclusion
44. Subject to the above observations, therefore, the present
application is dismissed, as, in the opinion of this Court, no
"proceeding", as could be stayed under Section 391 (6) of the
Companies Act, 1956, initiated by the NSDC, can be said to be
presently pending against the applicant.
C. HARI SHANKAR, J.
JUNE 15, 2020
HJ
