Whether NCLT has power to order criminal proceedings KVR Industries Pvt Ltd v. PP Bafna Ventures Pvt Ltd: A Case Comment

Introduction

After the enactment of the Insolvency and Bankruptcy Code 2016, NCLT and NCLAT have seen a sharp increment in number of proceeding before it.  These cases have overburdened the tribunals with proceedings related to oppression and mismanagement, revival of companies and IBC. Given the intense emphasis on these subject-matter cases, many appear to be unsure about the Tribunals’ powers, including the ability to pass orders and issue instructions if the Tribunals discover that a complainant has perjured itself before it. In this paper, the authors attempted to address this problem through case comment of Kvr Industries Pvt Ltd Vs Pp Bafna Ventures Pvt Ltd[1].

Fact

Corporate Debtor has filed an appeal against order of NCLT passed at Hyderabad for financial creditor P.P. Bafna Ventures Pvt. Ltd. Corporate debtor filled an application for initiating criminal proceeding under section 340 of Cr. P.C. read with Section 195 (1) (b) (i) of Cr. P.C. read with Section 193 of Indian Penal Code, 1860 against the P.P. Bafna who is authorized signatory of Financial Creditor. The NCLT has passed an order for withdrawal of an application filed by Financial Creditor on the ground that Eshwar Enterprise (Operational Creditor) has already filled an application under section 8 of IBC against the Corporate Debtor and, financial creditor can club its application with application of operational creditor. It was contended by the Financial Creditor that Corporate Debtor and Operational Creditor has settled their dispute outside of the court, so court should restore their previous application. On the other side, Corporate Debtor contends that signature of the Financial Creditor on application sought for restoration of earlier application is forged and court should initiate the criminal proceeding against the Financial Creditor.[2]

Background of Law

  • Section 424(4) of Companies Act state that all proceeding before NCLT or NCLAT should be treated as ‘judicial proceeding’ within the meaning of section 193, 196 and 228 and NCLT and NCLAT will be treated as civil court for purpose of section 195 and Chapter XXVI of the code of Civil procedure.[3]
  • Section 195 1(b)(1)of IPC “No Court shall take cognizance of any offence punishable under any of the following sections of [the IPC], namely, Sections 193 to 196 (both inclusive), 199, 200, 205 to 211 (both inclusive) and 228, when such offence is alleged to have been committed in, or in relation to, any proceeding in any Court”.[4] Sub section (3) of 195 states that “In clause (b) of sub-section (1), the term ‘Court’ means a Civil, Revenue or Criminal Court, and includes a tribunal constituted by or under a Central, Provincial or State Act if declared by that Act to be a Court for the purposes of this section.”[5]
  • 340 of Cr.P.C. states that when court is of opinion that it is convenient in interest of justice to have an inquiry related to offence mentioned under clause (b) of sub-section(1) of Section 195 of IPC which appears to have been committed in or in relation to a proceeding in that Court or, as the case may be, in respect of a document produced or given in evidence in a proceeding in that Court, such Court may, after such preliminary inquiry, if any, as it thinks necessary,—

a) Record a finding to that effect;

b) Make a complaint thereof in writing;

c) Send it to a Magistrate of the First Class having jurisdiction;

d) Take sufficient security for the appearance of the accused before such Magistrate, or if the alleged offence is non-bailable and the Court thinks it necessary so to do, send the accused in custody to such Magistrate; and

e) Bind over any person to appear and give evidence before such Magistrate.” And sub section (4) provides that ‘Court’ will be having same meaning given under section 195.”[6]

Issue

  • Whether NCLT or NCLAT are courts within the ambit of Section 195 read with 340 of Cr.P.C?
  • Whether NCLT or NCLAT has power to order criminal proceeding?
  • Whether judicial proceeding mentioned under section 424(4) of Companies Act comes under the purview of proceeding in any court under section 195(1)(b)(1) of Cr.P.C.?

Analysis

In present case, NCLAT held that Adjudicating Authority is not right while stating that it does not have jurisdiction to order criminal proceeding against the financial creditor. Section 340 of Cr.P.C read with section 195 of Cr.P.C gives Adjudicating Authority a power to hold preliminary inquiry “of opinion that it is expedient in the Interest of Justice that an inquiry should be made” into any offence referred in Clause ‘b’ of Sub-Section 1 of Section 195, which appears to have been committed in or in relation to a proceeding in that Court or, as the case may be, in respect of a document produced or given in evidence in a proceeding in that Court, i.e. Adjudicating Authority”.[7] Section 5 (1)of IBC defined adjudicating authority as NCLT formed under section 408 of Companies Act 2013. NCLAT also stated that ‘Courts’ in Section 195(3) of Cr.P.C. includes any tribunal constituted by or under Central, Provincial or State Act if the said act provides it. Section 424 sub clause 4 also provides that proceeding before NCLT or NCLAT shall be treated as ‘judicial proceeding’ within the meaning of section 193 and 228 and for the purposes of Section 196 of the Indian Penal Code and the NCLT this Tribunal shall be deemed to be Civil Court for the purposes of Section 195 and Chapter XXVI of Cr. P.C. NCLAT after interpreting all these provision held that NCLT was not right in its observation that it did  not have jurisdiction to entertain matter related to criminal proceeding. In case of Lalji Haridas vs State of Maharastra[8], Supreme Court stated that judicial proceeding under section 193 of IPC would include “any proceeding in any court” per Section 195(1)(b) Cr. PC. In case of Amit vashistha vs Suresh[9]SC relying on the decision of Lalji Haridas[10]said that proceeding before the authority under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952[11] were specifically in the nature of a “judicial proceeding”[12]so it can be treated as proceeding before “court” under section 195(1) of Cr.P.C. Court relied on Section 2(1) of Cr.PC as it defined judicial proceeding to include every proceeding where evidence is collected or may be taken on oath[13]and proceeding by authority under section 7-A Employees’ Provident Funds and Miscellaneous Provisions] Act [1952] gives power to take evidence on oath[14]. Therefore such proceeding can be equated with judicial proceeding under section 195(1)(b) of Cr.P.C.[15] Similarly, Bombay High Court in case of Baskar Mendon vs Sadashiv Narayan Shetty[16]stated that proceeding before the labour court will be treated as proceeding before the court under section 195 of Cr.P.C.  By reading harmoniously the Judgement of Lalji Haridas, Amit Vashitha and Baskar Mendon it can be summarized that;1) proceeding before NCLT and NCLAT are judicial proceeding for the purpose of section 193 of IPC; 2) NCLT and NCLAT comes under the definition of “court” under section 195(1)(b) and 340 of Cr.P.C; 3) NCLT or NCLAT has power under section 340 of Cr.P.C to conduct preliminary inquiry of an application and send it as a complain to magistrate of first class having jurisdiction for the commission of the offense of perjury committed in proceeding before NCLT or NCLAT.[17] Following that, such Magistrate of the First Class shall continue to act on such a complaint in the same manner as he or she would in a normal criminal trial.[18]

Conclusion

While these statutes, when read in conjunction with the aforementioned judicial decisions, provide a consistent procedural framework for furnishing false evidence in the NCLT and the NCLAT, the NCLT Rules and the National Company Law Appellate Tribunal Rules, 2016 do not specify which officer of such Tribunals is explicitly appointed to submit the “complaint” to the Magistrate of the First Class. However, given how proceedings in India are conducted, it is possible that the Tribunals may instruct the party claiming perjury to carry out service of such “complaint,” and if the NCLT or NCLAT initiates suo motu proceedings relating to perjury, the Tribunal may direct a member of the Tribunal to carry out service of such “complaint.” An ad hoc process, on the other hand, may stifle the NCLT’s and NCLAT’s ability to pursue those who present false evidence or information. Any institution’s judicial discipline, as well as the reverence and power it bears among the general public, is dependent on its ability to avoid misuse of its process. This would also include the ability to punish a litigant for wrongdoing during the hearings. To that end, NCLT`s President should use his administrative powers to appoint enough officials from each Bench to be able to initiate criminal proceedings against the person who provides false information or give false evidence.


*4th Year Student at WBNUJS Kolkata

[1] 2020 SCC ONLINE NCLAT 828

[2] 2020 SCC ONLINE NCLAT 828

[3] Section 424(4) of Companies Act 2013

[4] Section 195 of IPC

[5] ibid

[6] Section 340 of Cr.P.C. 

[7] 2020 SCC ONLINE NCLAT 828

[8]  Lalji Haridas vs State of Maharastra  (1964) 6 SCR 700

[9] Amit vashistha vs Suresh (2018) 15 SCC 240

[10] S.340 of Cr.P.C.

[11] 2020 SCC ONLINE NCLAT 828

[12] Akin to  Section 424(4) of Companies Act 2013

[13] Section 2(1) Cr.P.C.

[14] S.7A of the Employees’ Provident Funds and Miscellaneous Provisions] Act, 1952

[15] Section 340 of Cr.P.C.

[16] Baskar Mendon vs Sadashiv Narayan Shetty 2018 SCC OnLine Bom 2106

[17] S. 340 of Cr.P.C.

[18] S. 340 of Cr.P.C.

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