Rights of a company under Section 630(1) of the Companies Act, 1956 ,  to claim back its property from a former employee.

By Er. Sandeep Suri

BE (Electronics), LLB, Chevening Scholar

Advocate, Chandigarh.

a. Whether an order for handing over of the property could be made (under Section 630(2)) even prior to final disposal of the complaint (under Section 630(1))?

 

b. Does the term 'property of the company' refer to properties not owned by the company also.

 

Facts: Property given to ex-director (ex-employee) for use and occupation during the course of his employment.  Accused was a director of the company from 1988 to 2008. He was allowed to use and occupy the disputed property on and from 1.5.2008 by virtue of holding the office of director. He ceased to be a director of the appellant company from 28.11.2008.  Consequently he was required to return the disputed property to the company; however he failed to do so. The appellant company on 20.4.2009 asked him to vacate and deliver physical possession of the disputed property. When he refused, the appellant sent a letter requesting delivery of possession. When the accused failed to comply with the companies request, criminal complaint was filed against him under Section 630(1) of the Companies Act, 1956 . During the pendency of this complaint, the appellant company filed an application on 29.4.2010 under Section 630(2) of the 1956 Act for dispossessing the accused from the disputed property. Thereafter the accused filed Suit before the Civil Judge against the vendors, praying for specific performance and a permanent injunction restraining the vendors from disturbing his possession, based upon the supposed oral agreement/understanding of sale. The Civil Judge by order dated 6.7.2009 issued a temporary injunction directing the parties to maintain status quo in respect of possession of the disputed property. This suit is still pending adjudication. The Judicial Magistrate by order dated 6.9.2010 allowed the appellant's application under Section 630(2), holding that the pendency of a civil suit would not bar the filing of a criminal complaint in respect of the disputed property under Section 630, and that an application under Section 630(2) could be allowed even before final disposal of the complaint under Section 630(1) of the 1956 Act. Order upheld.

 

 

 

WHAT THE SUPREME COURT HELD

 

 

 

a. Whether an order for handing over of the property could be made (under Section 630(2)) even prior to final disposal of the complaint (under Section 630(1))?

 

The court held that where the Magistrate has found that prima facie the company has a right to possession of the disputed property, he may grant interlocutory relief under Section 630(2) prior to conclusion of the trial. That Section 630 has to be given a liberal interpretation so as to facilitate expeditious recovery of the company's property. Given that the primary object of Section 630 is to provide a speedy mechanism for restoration of wrongfully withheld property to companies, it has been held the provision should be construed as far as possible to facilitate a remedy in favour of the aggrieved company and to prevent the wrongful retention of the property for an unduly long period by the accused.

 

Held, that there is no stipulation in Section 630(2) that an order for delivery of wrongfully withheld property must be made only after the accused has been convicted under Section 630(1). Rather, it says the Court 'trying' the offence may direct the delivery of such property, which indicates that such an order may be passed at any stage by the trial court.

 

                                                                                                        

 

 

 

b. Property of the Company : The term 'property of the company' nowhere requires that the company should have title to the property and includes any property  over which the lawful right of exclusive possession of the company exists , even though the property as such may not belong to the company but to a third-party

 

The term 'property of the company' has to be construed widely having regard to the beneficial object of the Section 630 Companies Act, 1956  which is para materia with   Section 452 of the Companies Act, 2013.

 

Court has to go into the spirit of the provision, and the finding of the High Court by strictly interpreting Section 630 to mean that the appellant company must have title by way of ownership to the disputed property and that the accused should have been in possession of the flat as a perquisite of his service was set aside.

 

Section 630 nowhere requires that the company should have title to the property. ( eg property for which the company in the present case may be a lessee)  The emphasis is on whether the accused has obtained wrongful possession of the property which defeats the company's lawful right of exclusive possession, even though the property as such may not belong to the company but to a third-party landlord or licensor.

 

The court held that  it is true that in the majority of cases falling under the ambit of Section 630, it has been that property possessed by the company was allotted to an employee for the purposes of residential accommodation, etc. as an incidence of his service, at the first instance itself. In the present case, the 2nd Respondent has been a director of the company since 1988, and claims to be in permissive possession of the disputed property as per the alleged understanding between him and his relative, the deceased AKB (landlord) , since 1994. However the company acquired the disputed property only in 2008. Be that as it may, the 2nd Respondent has failed to rebut the fact that it is the company which has acquired the exclusive right to possess the property, and the company handed over possession to him w.e.f 1.5.2008 only in his capacity as the director of the company. Whatever may have been the situation prior to 26.4.2008, on and after that date the company became entitled to recover possession of the disputed property.

 

Held further, Section 630 nowhere stipulates that the property should have been allotted by the company to the accused as a perquisite of service. There may be a number of purposes for which the accused may be given lawful possession of the company's property during the course of employment for example, for safe custody of the property or for maintenance thereof. The purpose for which and the time at which possession was given is irrelevant. What is sufficient is that the accused was put into possession of the property in their capacity as an officer/employee of the company and continued to withhold such property without having any independent right, title or interest thereto even after cessation of his employment. Mere oral agreement or understanding would not be sufficient to establish such an independent right.

 

 

 

HOOGHLY MILLS COMPANY LTD. v. THE STATE OF WEST BENGAL

 

2020 SCeJournal 34

about the author

Er. Sandeep Suri, is a practicing Advocate at Chandigarh.

suri_chd@yahoo.co.uk