Wrongful withholding of company property
is an offence and the wrong doer can be proceeded against under section 630 of the
Companies Act. Whether this section can be pressed into service even against the
legal heirs of past employee is the crucial question examined in the light of recent
judicial elucidations.
Introduction
1.
The purpose of enacting section 630 of the Companies Act, 1956 (hereinafter
the Act) is to provide speedy relief to a company when its property is wrongfully
obtained or wrongfully withheld by an employee or ex-employee. However, as a matter
of fact the ex-employees are habitual to contest the cases up to the Supreme Court
with a view to enjoy the possession of companys houses without paying any rent
to the company during the intervening period.
1.1
The experience shows that in every legal case, apart from engaging a good
advocate, almost 50% chances of success depend upon how diligently the case has
been prepared by the person in-charge. For example, in later part of the year 1995
one case u/s 630 of the Act was filed by certain company against the legal heir
of ex-employee in the
1.2
However, it is strange to note that notwithstanding the company has won earlier
cases the other ex-employees, who had subsequently retired, did not vacate the companys
houses and the company was constrained to file as much as 15 more cases u/s 630
of the Act. The reason behind this approach of ex-employees
was that the earlier cases were filed in the trial court in 1995 and finally decided
by Supreme Court in 2002. During this intervening period of 8 years the ex-employees
enjoyed the companys houses without paying any rent to the company. As all are
aware for recovering the mesne profits the company was required to file separate
civil suit(s) which was not feasible compared to the cost of litigation.
1.3
As aforesaid although section 630 provides a summary procedure for retrieving
the property of the company, a major drawback is that it does not provide for recovering
the mesne profits. This lacuna is required to be removed
by suitably amending section 630 at the earliest, because the tendency not to vacate
the companys premises is widely prevalent.
Section 630 is concerned with possession,
not title
2.
In Kannankadi Gopal Krishna Nair v. Prakash Chunder
Juneja, (1994) 81 Com Cases 104 : (1994) 1 LLJ 146 (Bom) the Bombay High Court
said [at p. 118]: What needs to be emphasised here is that this provision of the
Companies Act does not concern the aspect of title, but it is exclusively confined
to the aspect of possession. It is in these circumstances,
therefore, that the courts have consistently applied section 630 of the Companies
Act even in cases of residential accommodation which admittedly does not belong
to the company, but in respect of which the company is in exclusive possession.
In other words, the right of user in respect of property, moveable or immovable,
which is conferred on an employee by virtue of his status as an officer or employee
of the company and which gets extinguished on the cessation of the contract of service
cannot be extended and this provision of law prescribed a penalty in such cases
where an attempt is made to wrongfully extend it and also empowers the court to
ensure that possession is restored.
Principle of estoppel u/s 116 of Evidence
Act is applicable to the prosecution u/s 630 of the Companies Act for retrieval
of possession of premises
3.
Now let us examine a recent judgement of Supreme Court in S.K.
Sarma v. Mahesh Kumar Verma (2002) 7 SCC 505 (Criminal Appeal
No. 960 of 2002 decided on September 17, 2002). The
question involved in this appeal was whether before invoking the provisions of section
138 of the Railways Act, 1890 for evicting the retired railway employee (respondent
herein) from the official premises, the railway administration was required to prove
that the premises in question belonged to it. As per
facts of the case the Railway Department was the lessee of the premises however,
failed to prove lease document in its favour.
3.1
The Supreme Court held that the contention of the learned Senior Counsel
for the respondent that the railway administration has to prove that the property
in question was belonging to it before invoking Section 138 is totally misconceived,
because once it is admitted that the respondent was given possession of the premises
in question by order dated 17.01.1967 as he was entitled to the same while working
as Chief Public Relations Officer of the Department, he could not be permitted to
deny the title of the railway administration. Admittedly,
the respondent was inducted because he was in railway service.
Now, he is estopped from challenging the title of the appellant over the
premises in question. For this purpose, we would refer
to Section 116 of the Evidence Act which reads thus
116
Estoppel of tenant and of licensee of person in possession No tenant
of immovable property, or person claiming through such tenant, shall, during the
continuance of the tenancy, be permitted to deny that the landlord of such tenant
had, at the beginning of the tenancy, a title to such immovable property;
and no person who came upon any immovable property by the licence of
the person in possession thereof, shall be permitted to deny that such person had
title to such possession at the time when such licence was given.
(emphasis supplied)
3.2
The Court held that the second part of the aforesaid section clearly provides
that no person who came upon any immovable property by the licence of the person
in possession thereof shall be permitted to deny the title to such person to such
possession of the property. He cannot deny the same
during the pendency of such licence or sub-lease. Such
estoppel continues to operate so long as the licensee or sub-tenant has not openly
restored possession by surrender to such person. This
rule of estoppel would cease to operate only after such licensee or sub-tenant has
been evicted. This position does not require reference
to many judgements. However, we would refer to the decision
in S. Thangappan v. P. Padmavathy (1999) 7 SCC 474
in which the appellant tenant who was running an automobile
workshop since 1962 disputed the title of the respondent landlady on the ground
that a certain Devasthanam was the actual landlord.
This Court held that Section 116 of the Evidence Act,
1872 puts an embargo on a tenant of an immovable property, during the continuance
of his tenancy to deny the title of his landlord at the beginning of his tenancy.
The significant words under it
are at the beginning of the tenancy. So a tenant
once inducted as a tenant by a landlord, later cannot
deny his landlords title. Howsoever defective
the title of such landlord may be, such tenant cannot deny his title (emphasis
supplied).
3.3
In this view of the matter, the respondent cannot be permitted to contend
that the property was not belonging to the railway administration.
Whether the railway administration is owner, mortgagee, lessee or licensee
is not required to be decided in such proceedings at the instance of the sub-lessee
or licensee of the railway administration.
3.4
Therefore, it stands concluded that the ratio of this judgement is equally
applicable to the cases u/s 630 of the Act for retrieval of possession of premises
of the company.
Should the tenant be asked to pay mesne profits
during the period he was in unauthorised occupation of the premises ?
3.5
The Court further held that section 630 does not empower the court to pass
such order nor in any case in the instant case was such a question raised before
the trial court. It is open to the appellant to resort
to any other alternative remedy available to it under the law.
Important judgment delivered by a
three judge bench of Supreme Court in Lalita Jalan and another v.
Bombay Gas Co. Ltd. and another
The attention of the readers is invited to a latest
judgment delivered by a three judge bench of Supreme Court in Lalita
Jalan and another v. Bombay Gas Co. Ltd. and another [2003]
54 CLA 1 (SC) (Criminal Appeal No. 574 of 2003 decided on 16th April,
2003) in which the court held that all the legal heirs of a former employee are
liable to be prosecuted under section 630 of the Companies
Act. The following principles have been culled from
this judgment.
A beneficent provision is to be construed
liberally
4.
The Supreme Court in Baldev Krishna Sahi v. Shipping
Corpn. of India Ltd. [1987] 4 SCC 361 held as under in para 7 of the report
:
The beneficent provision contained in section
630 no doubt penal, has been purposely enacted by the legislature with the object
of providing a summary procedure for retrieving the property of the company (a)
where an officer or employee of a company wrongfully obtains possession of property
of the company, or (b) where having been placed in possession of any such property
during the course of his employment, wrongfully withholds possession of it after
the termination of his employment. It is the duty of
the court to place a broad and liberal construction on the provision in furtherance
of the object and purpose of the legislation which would suppress the mischief and
advance the remedy.
4.1
It was further held that section 630 plainly makes it an offence if an officer
or employee of the company who was permitted to use any property of the company
during his employment, wrongfully retains or occupies the same after the termination
of his employment and that it is the wrongful withholding of the property of the
company after the termination of the employment, which is an offence under section
630(1)(b) of the Act.
4.2
A three judge bench of Supreme Court in Amrit Lal Chum v.
Devoprasad Dutta Roy [1988] 2 SCC 269 held that the construction
placed upon the section in Baldev Krishna Sahis case (supra) is
the only construction possible and there was no warrant to give a restrictive meaning
to the term `officer or employee appearing in sub-section (1) of section 630 of
the Act as meaning only the existing officer and employees and not those whose employment
have been terminated. The matter was again considered
in Atul Mathur v. Atul Kalra [1989] 4 SCC 514, and
it was held that the purpose of enacting section 630 is to provide speedy relief
to a company when its property is wrongfully withheld by an employee or an ex-employee
and the view taken in Baldev Krishna Sahis case (supra) and
Amrit Lal Chums case (supra) was affirmed that the term `officer
or employee of the company applies not only to existing officers or employees but
also to past officer and employees.
Violation of section 630 is a continuing offence
5.
In Gokak Patel Volkart Ltd. v. Dundayya Gurushiddaiah
Hiremath [1991] 2 SCC 141, the Supreme Court following Baldev Krishna
Sahis case (supra) and Amrit Lal Chums case (supra) held that
section 630 of the Act embraced both present and past officers and employees within
its fold and having regard to the words `wrongfully withholding the property observed
that the offence continues until the property so obtained or withheld is delivered
or refunded to the company. It will be a recurring or continuing offence until the
wrongful possession, wrongful withholding or wrongful application is vacated or
put up an end to.
5.1
Further, Supreme Court in Lalita Jalan and another case (supra)
held that the holding back or keeping back is not an isolated act but is a continuous
process by which the property is not returned or restored to the company and the
company is deprived of its possession.
The capacity and right to possession
are integrally blended with employment
6.
The Supreme Court referred its earlier judgment
in Abhilash Vinodkumar Jain case (supra) in which the Court
held as under in para 14 of the Report :
Thus, inescapably it follows that the capacity,
right to prosecution (sic possession?) and the duration of
occupation are all features which are integrally blended with the employment,
and the capacity and the corresponding rights are extinguished with the cessation
of employment and an obligation arises to hand over the allotted property back to
the company. Where the property of the company is held
back whether by the employee, past employee or anyone claiming under them, the retained
possession would amount to wrongful withholding of the property of the company actionable
under section 630 of the Act.
It is immaterial whether the wrongful withholding
is done by the employee or the officer or the past employee or the past officer
or the heirs of the deceased employee or the officer or anyone claiming their right
of occupancy under such an employee or an officer. It
cannot be ignored that the legal heirs or representatives in possession of the property
had acquired the right of occupancy in the property of the company by virtue of
being family members of the employee or the officer during the employment of the
officer or the employee and not on any independent account.
They, therefore, derive their colour and content from the employee or the
officer only and have no independent or personal right to hold on to property of
the company. Once the right of the employee or the officer
to retain the possession of the property, either on account of termination of services,
retirement, resignation or death, gets extinguished they (persons in occupation)
are under an obligation to return the property back to the company and on their
failure to do so, they render themselves liable to be dealt with under section 630
of the Act for retrieval of the possession of the property.
Section 630 of the Act is not a penal
provision
7.
The Supreme Court further held that section 630 of the Act is in two parts.
Clause (b) of sub-section (1) thereof lays down that if any officer or employee
of a company having any property of the company in his possession wrongfully withholds
it or knowingly applies it to purposes other than those expressed or directed in
the articles and authorised by the Act, he shall, on the complaint of the company
or any creditor or contributory thereof, be punishable with fine which may extend
to Rs. 10,000. At this stage no substantive sentence
can be awarded. Sub-section (2) thereof empowers the
court trying the offence to order such officer or employee to deliver up or refund
within time to be fixed by the court any such property wrongfully obtained or wrongfully
withheld or knowingly misapplied or in default to suffer imprisonment for a term
which may extend to two years. Sub-section (1), wherein
wrongfully withholding the property of the company has been made an offence, is
punishable with fine only and it does not provide for imposing any substantive sentence.
It is only where the court directs the officer or employee to deliver or
refund the property within a fixed period and such order of the court is not complied
with and the property is not delivered or refunded that a sentence of two years
can be awarded. Therefore, it is non-compliance or non-observance
of the order of the court regarding delivery or refund of the property which results
in making the person so directed liable for being awarded a substantive sentence
of imprisonment.
Difference between civil wrongs and
crimes
8.
The Supreme Court further observed that in Salmond on Jurispurdence
(13th edn., p. 91) the difference between civil wrongs and crimes has
been explained as under :
The distinction between crimes and civil wrongs
is roughly that crimes are public wrongs and civil wrongs are private wrongs. A
crime then is an act deemed by law to be harmful to society in general, even though
its immediate victim is an individual. Murder injures
primarily the particular victim, but its blatant disregard of human life puts it
beyond a matter of mere compensation between the murderer and the victims family.
The Companies Act is not a criminal statute
8.1
The Supreme Court further held that the purpose of criminal justice is to
award punishment. It is a method of protecting society
by reducing the occurrence of criminal behaviour. It also acts as a deterrent. Where
the punishment is disabling or preventive, its aim is to prevent a repetition of
the offence by rendering the offender incapable of its commission.
The Companies Act is entirely different from those statutes which basically
deal with offences and punishment like Indian Penal Code, Terrorist and Disruptive
Activities (Prevention) Act, etc. Having regard to the purpose for which section
630 has been enacted, viz., to retrieve the property of the company and the salient
features of the statute (Companies Act) it is not possible to hold it as a penal
provision as the normal attributes of crime and punishment are not present here.
The award of sentence by the Court
does not violate fundamental rights
9.
The Supreme Court observed With profound respects we are unable to agree
with certain observation made in J K (Bombay) Ltd. v.
Bharti Matha Mishra [2001] 2 SCC 700 that prosecution of other family
members of a former employee living with him would violate article 21 of the Constitution.
The award of sentence by the order of the court cannot amount to violation
of any of the fundamental rights guaranteed under the Constitution is now well settled
by several authoritative pronouncements of this court.
9.1
The possession of the property by an employee or anyone claiming through
him of such property is unlawful and recovery of the same on the pain of being committed
to a prison or payment of fine cannot be stated to be unreasonable or irrational
or unfair so as to attract the rigour of article 21 of the Constitution. The Supreme
Court further held that the view expressed in J K (Bombay) Ltd.
(supra), in our opinion is not correct and the view expressed in Abhilash
Vinodkumar Jain (supra) is justified and should be accepted in interpreting
the provision of section 630 of the Act.
All the legal heirs and others are
liable to be prosecuted under section 630
10.
The Supreme Court concluded and held that if an erstwhile or former employee
is prosecuted under section 630 of the Act on account of the fact that he has not
vacated the premises and continues to remain in occupation of the same even after
termination of his employment, in normal circumstances it may not be very proper
to prosecute his wife and dependent children also as they are bound to stay with
him in the same premises. The position will be different
where the erstwhile or former employee is himself not in occupation of the premises
either on account of the fact that he is dead or he is living elsewhere.
In such cases all those who have come in possession of the premises with
the express or implied consent of the employee and have not vacated the premises
would be withholding the delivery of the property to the company and, therefore,
they are liable to be prosecuted under section 630 of the Act.
This will include anyone else who has been inducted in possession
of the property by such persons who continue to withhold the possession of the premises,
as such person is equally responsible for withholding and non-delivery of the property
of the company. (emphasis supplied)(END)
Note:
the views expressed are my personal and a view point only.
Author:
Narendra Sharma, Consultant
(Legal)
E-mail:
nkdewas@yahoo.co.in
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