Whether legal heirs of a former employee are liable to be prosecuted under section 630 of the Companies Act, 1956?
“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.”
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 company’s 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 CJM Court. But the same was dismissed on 20.10.1995 and the order of learned CJM was affirmed in revision by the Sessions Court on 28.02.1996. It would be interesting to note that in the meantime the Supreme Court had already pronounced judgment in Abhilash Vinodkumar Jain V. Cox & Kings (India) Ltd. reported in (1995) 3 SCC 732 : (1995) 84 Com cases 28 : AIR 1995 SC 1592. Unfortunately, this judgment escaped attention of the company, the advocate concerned and both the Hon’ble courts below. Subsequently, after noticing the judgment in Abhilash Vinodkumar Jain case (supra) a petition u/s 482 of Cr.PC was filed before Hon’ble High Court, which allowed the petition on 11.03.1998.
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 company’s 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 company’s 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 company’s 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 landlord’s 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  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.  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  2 SCC 269 held that the construction placed upon the section in Baldev Krishna Sahi’s 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  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 Sahi’s case (supra) and Amrit Lal Chum’s 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  2 SCC 141, the Supreme Court following Baldev Krishna Sahi’s case (supra) and Amrit Lal Chum’s 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 victim’s 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  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)
Note: The views expressed are my personal and a view point only.
(Author: Author can be reached at Mobile-9229574214, E-mail: email@example.com)