JUDGMENT A.K. Banerji, J.
1. By means of the present application (A-10) filed under Section 442 of the Companies Act. 1956 (in short Act) read with Rule 9 of the Companies (Court) Rules. 1959, M/s. Yogi Pharmacy Limited (Applicant) has, inter alia prayed for the following orders :
(1) A protection order to stay the suits and proceedings detailed in Annexure-2 of the application and pending in various Courts :
2. Briefly stated the relevant facts as set out in the application are that the applicant M/s. Yogi Pharmacy Limited was engaged in the manufacturing of Ayurvedic medicines at its factory situate in the district of Hardwar. The applicant which was established in the year 1888 was incorporated as a private limited company in the year 1986 and converted into a public limited company in the year 1991. It directly employs about 300 workers besides there are over 600 seasonal employees. It is profit-making concern which had been also declaring dividends. In the month of March 1995, a consignment of over Rs. 10 crores meant for export to Russia was seized by the Custom Authorities at the Indira Gandhi Air Port. Delhi, and the same was only released after about two and a half years in the year 1997. Consequently, the applicant suffered a set-back and a liquidity crunch. One Mr. K. K. Dhawan, the then Managing Director borrowed funds from various financiers and took loans on the basis of fake and forged resolutions. When the company was facing liquidity crunch, a number of parties filed winding-up petitions before this Court and also resorted to criminal proceedings against the company including Mr. K. K. Dhawan. The said suits and proceedings are pending in various Courts and the company and the Managing Director must be given proper opportunity to defend the various suits and proceedings most of which have been filed mala fide only to harass and deprive the company. Consequently, it is in the interest of justice that the suits and proceedings pending in various Courts against the applicant-company as well as investigation pending on an F.I.R. lodged by the opposite party No. 8 be stayed till the disposal of the winding-up petitions pending before this Court.
3. Though the present application was filed in Company Petition No. 2 of 1997, which has been filed under Section 433 ie) by M/s. Elegant Marbles and Grani Industries Limited, the applicant has impleaded nine parties to the present application as opposite parties 1 to 7 thereof are petitioner who have filed winding-up petitions against the company. The opposite party No. 8 M/s. Nucleus Securities Limited have not filed any winding-up proceeding but have filed an F.I.R. against the directors including Mr. K. K. Dhawan. Opposite party No. 9 is the Deputy Commissioner of Police. Parliament Street. New Delhi, who is investigating the F.I.R. lodged against the company. Along with the application, the applicant has annexed as Annexure-2, a chart containing the details of some of the cases and proceedings which are pending against the company. Notice of this application has been served on the said opposite parties. Only two counter-affidavits have been filed, one by the opposite party No. 6 M/s. Ceat Financial Services Limited, Calcutta and the other by M/s. Nucleus Securities Limited (opposite party No. 8). Though the other opposite parties have not filed any counter-affidavit but their counsel appeared before the Court and have opposed the prayer made in the present application. In the counter-affidavit filed by opposite party No. 6, it has been inter alia stated that the present application has not been filed bona fide but merely with an intention to delay the proceedings of the winding-up petition and for buying time to dispose of movable properties. Consequently, the prayer made in this application is an abuse of the process of the Court and must not be allowed. The opposite party No. 8 has also in its objection, inter alia stated that the application was not maintainable besides being misconceived as the said opposite party had only lodged an F.I.R. against the applicant for committing, cheating, fraud, forgery and criminal breach of trust. The F.I.R. is being investigated by the police and such investigations cannot be stayed under Section 442 which will have no application so far as the case of the present opposite party is concerned.
4. I have heard Shri V. K. S. Chaudhary, learned senior counsel assisted by-Shri O. P. Mishra on behalf of the applicant, S/Shri Vinod Mishra. R. K. Agrawal, Kushal Kant, Manish Goel. Navin Sinha and Sharad Verma, learned counsel for the opposite parties.
5. Learned counsel for the applicant has vehemently contended that the applicant-company which is a public limited company having over 20,000 share-holders is one of the major and prominent company for manufacturing Ayurvedic medicines. It is not only an export-oriented unit but it also have wide market all over the country employing stockists, sub-dealers and retailers. It has also employed a large number of workmen either directly or indirectly and it was a profit-making concern. However, on account of the illegal seizure of an export consignment of Rs. 10 crores, the company suffered a temporary set-back and on account of which there was a liquidity crunch. It also transpired that the Ex-Managing Director of the Company namely, Mr. K. K. Dhawan had on the basis of fake and forged non-existence resolutions borrowed funds from the various financiers and took loans arbitrarily. The said parties in collusion with Mr. K. K. Dhawan had instituted as many as about 70 proceedings in various Courts in the country. The applicant has every intention to pay the admitted dues which are approximately of about Rs. 3 crores. The export consignment of Rs. 10 crores is lying with the applicant and the present Managing Director had to leave for a foreign tour to procure a buyer for the same but as he was illegally arrested, the sale of the consignment is being held-up. It was further contended that the Managing Director needs a breathing time to arrange his affairs and thereafter will be able to pay-off the dues. Consequently, it is desirable that appropriate orders may be passed by this Court as prayed in this application for staying the suits and proceedings pending against the applicant details of some of which have been disclosed in Annexure-2 to the affidavit filed in support of the application. Learned counsel has invited the attention of the Court to the provisions of Section 442(b) of the Act, which is quoted below :
"442. Power of Court to stay or restrain proceedings against the company.--At any time after presentation of a winding-up petition and before a winding-up order has been made the company, or any creditor or contributory, may-
(a) .....
(b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wound-up the company, to restrain further proceedings in the suit or proceeding :
and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit."
6. It was urged that in the facts and the circumstances of the case, the said provisions should be invoked by the Court and the proceedings should be stayed. Learned counsel has contended that this power has been exercised by the Court in appropriate cases. Reliance was placed on an Enligsh decision Re. Dynamics Corporation of America and another, (1972) 3 All ER 1046. In the said case, the Court applied the provisions of Section 226 of the Enligsh Companies Act, 1948 which is similar to the provisions of Section 442 of the Indian Companies Act. 1956 and held that the Court had jurisdiction to make an order for any other action or proceeding against the company which was facing winding-up. Reliance was also placed on the decision Re. J. Burrows (Leeds) Ltd. (1982) 2 AH ER 832, wherein, it was held by the Ch. Division that proceeding in the Magistrate's Court were proceeding within the meaning of Section 226(b) of 1948 Act and so the Court could grant stay. Another English decision on which reliance was placed was in Re. Brition Medical and General Life Assurance Association, (1986) 32 Ch. Division 503. It was held in this case that where a petition had been presented for winding-up of a company and a third party had taken out summons from the police Court against the company to recover penalties for alleged offence under the Companies Act, 1862 and the Life Assurance Companies Act, 1870, an injunction to restrain the proceedings against the company before the Magistrate could be issued and the Court had jurisdiction to issue an injunction to restrain the proceedings against the company before the Magistrate.
7. I have carefully considered the submission made by the learned counsel for the applicant. It is evident from the provisions of Section 442 that the Court has a discretion in the matter which has to be judicially exercised in the facts and the circumstances of each case. The Supreme Court in the case of the Official Liquidator v. Dharti Dhan (P.) Ltd., AIR 1977 SC 740, had held that under Section 442, a stay order cannot be passed mechanically or as a matter of course on showing fulfilment of some facts and prescribed conditions. It can only be made judiciously upon an examination of the totality of the facts which vary from case to case. It was held that the order to be passed must be discretionary and the power to pass it must therefore directory and not mandatory. A stay is not to be granted if the object of applying for it appears to be merely to delay adjudication of a claim, and thereby to defeat Justice.
8. In the facts of the present case, the chart which has been annexed as Annexure-2 to the application discloses that most of the cases which are pending against the company are either winding-up petitions filed under Sections 433 and 434 of the Act or proceedings under Section 138 of the Negotiable Instruments Act. So far as the winding-up proceedings are concerned, which are pending either before this Court or before other High Courts, the same cannot be stayed as Section 442 has no application for stay of winding-up petitions. See AIR 1965 Col 98. So far as the proceedings under Section 138 of the Negotiable Instruments Act are concerned, the same have been instituted as the cheques issued by the company have been dishonoured. The Court is of the view that merely because a number of cases have been filed against the company and the Managing Director needs a breathing time, this will not be a ground to stay the said proceedings which have been instituted before the appropriate Court as cheques have been issued by the company without there being any funds. So far as the merits of these cases are concerned, that shall be considered by the Court where the same are pending. This Court does not find any reason to stay the said proceedings. So far as the stay of the F.I.R. lodged by the opposite party No. 8 is concerned, it has been contended by Shri Kushal Kant, learned counsel for the said opposite party that to such proceedings Section 442 of the Act are not applicable. It was urged that on the F.I.R. lodged, the police investigations are going on against the directors of the company and such investigation cannot be said to be proceedings as contemplated under Section 442 of the Act. The submission made by the learned counsel is not without force. Faced with this difficulty, the learned counsel for the applicant has tried to contend that even if the provisions of Section 442 of the Act are directly not applicable, the Court could invoke Rules 6 and 9 of the Companies (Court) Rules which are akin to Section 151, C.P.C. and pass appropriate orders under the said rules. Support has been taken by the learned counsel from the decision of the Supreme Court in the case of Manohar Lal Chopra v. Raj Bahadur Rao Raja Seth Hiralal. AIR 1962 SC 527, wherein, it has been held that the Court could still issue temporary injunction even if the case did not fall within the parameters of Order XXXIX, C.P.C. by exercising its inherent powers under Section 151. C.P.C. if found necessary for the ends of justice. Some other decisions of this Court which have followed the decision of the Supreme Court in the case of Manohar Lal Chopra were also cited in support of his submission. I am of the view that in facts and the circumstances of the case.
the said provisions cannot be applied. From the copy of the F.I.R. which has been filed along with the counter-affidavit of the opposite party No. 8, it would be evident that serious allegations have been made regarding fraud, criminal breach of trust against, the company and its directors. The matter is being investigated by the police. In view of the same, the Court will not be inclined to exercise its discretion to stay the proceedings merely because the Managing Director is desirous of having some breathing time to look after the pending winding-up petitions. I am, therefore, unable to agree with the submission made by the learned counsel for the applicant.
9. So far as the English decisions cited by the learned counsel are concerned, the facts of the said cases in which the proceedings were stayed were absolutely different from the facts of the case at hand. In the facts of those cases, the Court felt inclined to exercise its discretion in favour of the applicant. In the facts of the present case and the serious allegations made against the company and its directors, this Court is not inclined to exercise its discretion and stay the proceedings of the various cases filed against the applicant-company.
10. It was lastly urged by the learned counsel that even if the Court is not inclined to stay the proceedings as prayed, directions may be issued to the Station House Officer. Police Station, Cannaught Place, New Delhi not to seize the records of the company as the same would be required for the purposes of the present winding-up case. Learned counsel has made an offer that if required, the records may be inspected at the office of the applicant or photocopies of the documents could be supplied by the applicant, in case the same is required by the police. So far as this submission is concerned, the Court is not inclined to pass any orders in respect thereof as the same might hamper the investigations and delay the proceedings. However, it is always open to the applicant if so advised, to approach the police authorities and to make such prayer before them.
11. Consequently, as a result of the aforesaid discussions, the prayer made in the application (A10) cannot be accepted. The said application is consequently rejected.