Kerala High Court Grants Stay on Proceedings initiated u/s 447 Companies Act before Special Court

Kerala High Court Grants Stay on Proceedings initiated u/s 447 Companies Act before Special Court

The Kerala High Court (HC) in the case titled Dr. P.P Joseph & Ors. (Petitioners) v. The State of Kerala & Anr. (Respondents) granted the stay of the fraud proceedings initiated under Section 447 of the Companies Act before the Special Court.

The single-judge of the HC Justice V.G. Arun granted an interim stay on the proceedings pending before the Additional District and Sessions Court for 2 months. The HC stated that there is an express bar in taking cognizance by Special Court upon private complaint for the offences punishable under Section 447 of the Companies Act.

The factual matrix of the case is that the petitioner invoked the power of the HC to quash all proceedings against the petitioners filed before the Additional District and Session Court i.e. Special Court under the Companies Act, 2013.

The Special Court has taken cognizance based on a complaint filed by the respondent for the offense of 'fraud' punishable under Section 447 of the Companies Act 2013.

It was alleged by the respondent that the petitioners who were the directors of the company named Cosmopolitan Hospitals Private Limited and the 6th petitioner was the Managing Director of the said company during the period up to September 2015.

It was further stated that petitioner no. 6 (Chandrika Menon) had continued as the Managing Director even after disqualification under Section 196(3) of the Companies Act. The Petitioner has attained the age of 70 and hence could not have continued as a Managing Director, but she had drawn salary and gratuity, to which she was not eligible.

It was contended by the respondent that the payment gratuity is authorized by the board of directors, the receipt of salary and gratuity by Petitioner is 'fraud' done in collusion with the other petitioners, which is punishable under Section 447 of the Companies Act.

The petitioner stated that the complaint has no legal basis and the Special Court under the Companies Act cannot take cognizance for an offense under Section 447 of the Companies Act except on a complaint in writing made by the Director, Series Fraud Investigation Office, or by other authorized officers of the Central Government as Section 212(6) Proviso 2 of the Companies Act.

The petitioner moved to the HC stating that the Special Court has taken cognizance and has issued summonses without considering the express provisions of Section 212(6) of the Companies Act. Hence, the entire proceedings that are pending before the Additional District and Sessions Court are liable to be quashed.

The HC allowed the petition and granted an interim stay to the pending proceedings before the Special Court.