Hooghly Mills Company Ltd. vs The State of West Bengal and Anr.

HELD : 1.1 A company has a separate legal personality. Hence even if it is accepted that the appellant company is owned and controlled by the vendors themselves, any orders issued in the civil suit between 2nd respondent and the vendors would not be binding upon the appellant company as it is not a party to the suit. It is true that in some cases the Court may pierce the ‘corporate veil’ and look at the reality behind the entity if it is found that the device of incorporation has been used to perpetrate some illegality or fraud. However no such illegality or fraud has been pleaded and proved in the present case. In any case, the pendency of a civil suit in respect of a property, would not bar a complaint under Section 630 of Companies Act, 1956 with respect to the same property, even if it is between the same parties, if there is no dispute or no bona fide dispute regarding the company’s right over the property. The mere fact that the accused employee has refuted the company’s claim to possession would not make the dispute bona fide. [Para 8] [418-A-D]

1.2 In the present case, there is no bona fide dispute, in as much as the 2nd respondent’s entire claim to the disputed property is based on an oral agreement/‘understanding’, as to the terms of which no documentary evidence has been produced. Whereas the appellant company has at least been put into symbolic possession of the property by Clause 6 of the agreement for sale dated 26.4.2008, which 2nd respondent has not disputed. [Para 8] [418-E-F]

1.3 In a case such as the present complaint, where there was only an oral agreement in favour of the accused employee for purchase of the property, but the civil court has issued a temporary injunction directing status quo, the accused will nevertheless acquire the right to possess the disputed property lawfully only if he is successful in obtaining a decree in his favour in the civil suit. The mere issuance of a temporary injunction by the civil court directing maintenance of status quo in respect of the disputed property does not make the dispute bona fide or bar the company’s right to recover the disputed property from the accused employee under Section 630 of the 1956 Act. At best, such an injunction would only bar the company from creating any rights in favour of third parties pending disposal of the civil suit. This is because the cause of action in the civil suit is completely different from the question of whether the employee is wrongfully withholding the company’s property, which is the issue for consideration in the present criminal proceedings. If prima facie the trial court finds that the company has the right to possess the property, the issuance of a temporary injunction by the civil court cannot be used to defeat the company’s lawful right of possession. This is also evident from clauses (b) and (d) of Section 41 of the Specific Relief Act, 1963. [Para 8] [418-G-H; 419-A-C]

1.4 Where the Magistrate has found that prima facie the company has a right to possession of the disputed property, he may grant interlocutory relief under Section 630(2) prior to conclusion of the trial under Section 630(1). Section 630 has to be given a liberal interpretation so as to facilitate expeditious recovery of the company’s property. The expression ‘officer or employee’ in Section 630, though it primarily applies to existing officers and employees, may also take in past officers and employees. Hence, given that the primary object of Section 630 is to provide a speedy mechanism for restoration of wrongfully withheld property to companies, the provision should be construed as far as possible to facilitate a remedy in favour of the aggrieved company and to prevent the wrongful retention of the property for an unduly long period by the accused. [Para 9] [419-G-H; 420-A, D-E; 421-C]

1.5 There is no stipulation in Section 630(2) that an order for delivery of wrongfully withheld property must be made only after the accused has been convicted under Section 630(1). Rather, it says the Court ‘trying’ the offence may direct the delivery of such property, which indicates that such an order may be passed at any stage by the trial court. Therefore in the present case, the courts below have not committed any error in allowing the appellant company’s application under Section 630(2) during pendency of substantive criminal proceedings. [Para 9] [421-D-F]

1.6 The High Court has gone against the spirit of the provision, by strictly interpreting Section 630 to mean that the appellant company must have title by way of ownership to the disputed property and that the accused should have been in possession of the flat as a perquisite of his service. Section 630 nowhere requires that the company should have title to the property. The emphasis is on whether the accused has obtained wrongful possession of the property which defeats the company’s lawful right of exclusive possession, even though the property as such may not belong to the company but to a third-party landlord or licensor. The term ‘property of the company’ has to be construed widely having regard to the beneficial object of the Section. [Para 10] [421-G-H; 422-A-B]

1.7 The 2nd respondent has admitted that after the death of the original owner, the disputed property was inherited by the vendors who subsequently transferred possession to the appellant company by the agreement dated 26.4.2008. The 2nd respondent also handed over the title deeds of the property to the appellant company. Therefore, till the time that the 2 nd respondent does not prove in the civil suit that the vendors were required to have sold the property to him, it is the company which has the exclusive right to possess the property at present. [Para 10] [422-C]

1.8 The 2nd respondent has failed to rebut the fact that as of 26.4.2008 it is the company which has acquired the exclusive right to possess the property, and the company handed over possession to him w.e.f 1.5.2008 only in his capacity as the Director of the company. Whatever may have been the situation prior to 26.4.2008, on and after that date the company became entitled to recover possession of the disputed property. [Para 10] [422-F]

1.9 There is no substance in the 2nd respondent’s argument that he was misled into delivering the title documents of the disputed property by his sister-in-law on the ground that they were required for updation of records. The 2nd respondent, being an office bearer in the company, could have got the records updated on his own or could have delivered it to the vendors, if it was on their insistence that he handed over the documents. However the letter dated 9.6.2008 shows that the title documents were delivered to a representative of the appellant company. This shows that the 2nd respondent acknowledged that title was to be transferred to the company vide the agreement dated 26.4.2008. [Para 10] [422-G-H; 423-A]

1.10 Section 630 nowhere stipulates that the property should have been allotted by the company to the accused as a perquisite of service. The purpose for which and the time at which possession was given, is irrelevant. What is sufficient is that the accused was put into possession of the property in their capacity as an officer/employee of the company and continued to withhold such property without having any independent right, title or interest thereto even after cessation of his employment. Mere oral agreement or understanding would not be sufficient to establish such an independent right. [Para 10] [423-B-D] Delhi Development Authority v. Skipper Construction Company (P) Ltd., (1996) 4 SCC 622 : [1996] 2 Suppl. SCR 295 ; Damodar Das Jain v. Krishna Charan

Chakraborti (1989) 4 SCC 531 ; Atul Mathur v. Atul Kalra (1989) 4 SCC 514 : [1989] 3 SCR 750 ; Baldev Krishna Sahi v. Shipping Corporation of India Limited (1987) 4 SCC 361 : [1988] 1 SCR 168 - relied on. Tata Tea Limited v. Fazlur Rahman (2001) 104 Comp Cas 718 Cal ; Jolly Durga Prasad v. Goodricks Group Ltd. (1999) 97 Comp Cas 698 (Cal) ; S. Palaniswamy v. Sree Janardhana Mills Ltd. (1993) 76 Com Cases

323 (Mad).) ; Kannankandi Gopal Krishna Nair v. Prakash Chunder Juneja (1994) 81 Comp Cas 104 ; PV George v. Jayems Engineering Co. (P) Ltd. (1990) 2 Comp LJ 62 (Mad)) ; Metal Box India v. State of West Bengal (1997) 2 DHN 423 - referred to.

2.1 Section 397(2) Cr.P.C provides that the High Court’s powers of revision shall not be exercised in relation to any interlocutory order passed in any appeal, inquiry, trial or other proceeding. Whereas Section 482 of the Cr.P.C provides that nothing in the Cr.P.C will limit the High Court’s inherent powers to prevent abuse of process or to secure the ends of justice. Hence the High Court may exercise its inherent powers under Section 482 to set aside an interlocutory order, notwithstanding the bar under Section 397(2). However it is settled law that this can only be done in exceptional cases. This is, for example, where a criminal proceeding has been initiated illegally, vexatiously or without jurisdiction. [Para 11] [423-D-F]

Madhu Limaye v. State of Maharashtra (1977) 4 SCC

551 : [1978] 1 SCR 749 - relied on.

2.2. In the present case, the order of the Magistrate under Section 630(2) was an interlocutory relief based on a prima facie assessment of facts and did not conclusively decide the ongoing trial under Section 630(1). If the Magistrate finds that the appellant company has been unable to prove that the 2 nd respondent was wrongfully withholding possession of the property, such interlocutory relief shall stand vacated. Thus, it is clear that there was no exceptional case of illegality or lack of jurisdiction in the interlocutory order of the lower court calling for the exercise of the inherent powers of the High Court under Section 482, Cr.P.C. [Para 11] [423-G-H; 424-A]